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. Thailand, Malaysia, and ...

stocks in

Shanghai Shanghai (; , , Standard Mandarin pronunciation: ) is one of the four direct-administered municipalities of the People's Republic of China (PRC). The city is located on the southern estuary of the Yangtze River, with the Huangpu River flow ...

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

Tianjing Tianjing (京), romanized at the time as Tienking, was the name given to Nanjing when it served as the capital of Hong Xiuquan's Heavenly Kingdom from 1853 to 1864, amid the Qing Empire's Taiping Rebellion. History Nanjing, was taken by the ...

Guangzhou Guangzhou (, ; ; or ; ), also known as Canton () and alternatively romanized as Kwongchow or Kwangchow, is the capital and largest city of Guangdong province in southern China. Located on the Pearl River about north-northwest of Hong Kon ...

, 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 imperial dynasty of China and the last orthodox dynasty in Chinese history. It emerged from the Later Jin dynasty founded by the Jianzhou Jurchens, a Tungusic-speak ...

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

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

, 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 () is a 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, Kelantan and Pahang to the east, and Selangor to the south. Thailand's ...

, 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 and Kuala Pilah. Neighborhood * Lavender Heights * Taman Banda ...

, 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, 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 performed i ...

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 is a British multinational universal bank and financial services holding company. It is the largest bank in Europe by total assets ahead of BNP Paribas, with US$2.953 trillion as of December 2021. In 2021, HSBC had $10.8 tri ...

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

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

. 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 (DAB) () 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 financ ...

. Java Rubber Co. established account at

Chartered Bank The Chartered Bank of India, Australia and China (informally The Chartered Bank) was a bank incorporated in London in 1853 by Scotsman James Wilson, under a Royal Charter from Queen Victoria.

. 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 or ...

and three

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

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 (; Ningbonese: ''gnin² poq⁷'' , Standard Mandarin pronunciation: ), formerly romanized as Ningpo, is a major sub-provincial city in northeast Zhejiang province, People's Republic of China. It comprises 6 urban districts, 2 sate ...

and reported the situations to

Zhang Renjun

Zhang Renjun (; 1846–1927) courtesy name Qianli () was Vic ...

(张人骏, Liangjiang governor) and

Cheng Dequan Cheng may refer to: Chinese states * Chengjia or Cheng (25–36 AD) * Cheng Han or Cheng (304–338) * Zheng (state), or Cheng in Wade–Giles Places * Chengdu, abbreviated as Cheng * Cheng County, in Gansu, China * Cheng Township, in Malacca, Ma ...

(程德全,

Jiangsu Jiangsu (; ; pinyin: Jiāngsū, Postal romanization, alternatively romanized as Kiangsu or Chiangsu) is an Eastern China, eastern coastal Provinces of the People's Republic of China, province of the China, People's Republic of China. It is o ...

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 signed on September 7, 1901, between the Qing Empire of China and the Eight-Nation Alliance that had provided military forces (including Austria-Hungary, France, Germany, United Kingdom, Italy, Japan, Russia, and the Un ...

. 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 cent ...

, 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; 15 February 1823 – 7 November 1901) was a Chinese politician, general and diplomat of the late Qing dynasty. He quelled several major rebellions and served in important ...

, is the Vice Minister of Transportation and Manager of the

Bank of Communications Bank of Communications Limited (BoComm) (; often abbreviated as ), is the fifth-largest bank in mainland China. Established in 1908, the Bank of Communications claims a long history in China and is one of the banks to have issued banknotes in mo ...

(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 ( ; ; ), alternatively romanized as Peking ( ), is the capital of the People's Republic of China. It is the center of power and development of the country. Beijing is the world's most populous national capital city, with over 21 ...

Chongqing Chongqing ( or ; ; Sichuanese dialects, Sichuanese pronunciation: , Standard Mandarin pronunciation: ), Postal Romanization, alternately romanized as Chungking (), is a Direct-administered municipalities of China, municipality in Southwes ...

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. Howe ...

Zhejiang areas

Zhejiang Province Zhejiang ( or , ; , also romanized as Chekiang) is an eastern, coastal province of the People's Republic of China. Its capital and largest city is Hangzhou, and other notable cities include Ningbo and Wenzhou. Zhejiang is bordered by Jiangs ...

, 18 famous native banks closed in

Nanjing Nanjing (; , Mandarin pronunciation: ), alternately romanized as Nanking, is the capital of Jiangsu province of the People's Republic of China. It is a sub-provincial city, a megacity, and the second largest city in the East China region. T ...

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 b ...

Yangzhou Yangzhou, postal romanization Yangchow, is a prefecture-level city in central Jiangsu Province (Suzhong), East China. Sitting on the north bank of the Yangtze, it borders the provincial capital Nanjing to the southwest, Huai'an to the north, Yan ...

Suzhou Suzhou (; ; Suzhounese: ''sou¹ tseu¹'' , Mandarin: ), alternately romanized as Soochow, is a major city in southern Jiangsu province, East China. Suzhou is the largest city in Jiangsu, and a major economic center and focal point of trade ...

Hangzhou Hangzhou ( or , ; , , Standard Mandarin pronunciation: ), also romanized as Hangchow, is the capital and most populous city of Zhejiang, China. It is located in the northwestern part of the province, sitting at the head of Hangzhou Bay, whi ...

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 (; zh, c=, labels=no, ; zh, p=Sìchuān; alternatively romanized as Szechuan or Szechwan; formerly also referred to as "West China" or "Western China" by Protestant missions) is a province in Southwest China occupying most of the ...

1911. Because Qing Government had to bring

Hubei Hubei (; ; alternately Hupeh) is a landlocked province of the People's Republic of China, and is part of the Central China region. The name of the province means "north of the lake", referring to its position north of Dongting Lake. The prov ...

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), Hubei, China on 10 October 1911, beginning the Xinhai Revolution that successfully overthrew China's last i ...

, the beginning of

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

References

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