A Research On Chinese-funded Banking Under The Great Depression In The1930s

The economic crisis originated in the United States in1929quickly spread tocountries around the world. As part of the world economic system, China has alsofailed to avoid the severe consequences of the world economic crisis in1929. At thattime, China’s monetary system was based on silver. During the Great Depression thevolatility of the international price of silver severely undermined China’s monetarysystem, and shook China’s economy. In this process, as the most important modernfinancial institutions, Chinese-funded banking, was directly related to the moneysupply, and will be inevitably affected naturally.During1929-1931, due to the falling international price of silver, silver largelyflowed into China. Bank deposits surged, capital was adequate, credit expanded, andthe Chinese-funded banks appeared prosperity. After1931as countries have toabandon the gold standard to deal with the crisis, the international price of silver rose,and silver began to drain from the countries. But with the bankruptcy of the ruraleconomy and the trade imbalance between country and city, silver shifted fromcountry to city, and the silver reserves of the city Chinese-funded banking continuedto rise, which further aggravated the depression of the country, but to some extentwhich eased the adverse effects of the rising of silver price to Chinese-fundedbanking. With the implementation of the Silver Act in U.S. in1934, the internationalprice of silver rose further, and large amounts of silver flowed out of China. Chinafell into serious deflation. Many banks appeared the running of silver. The monetaryof banks tightened. The funds were extremely deficient. And financial crisis brokeout.In response to the depression, the government, the banking trade organizationsand domestic banking took corresponding measures. Facing the banking in trouble,the government carried out a series of restructuring measures in order to inject thecapital to the banking and to ease the banking crisis. To overcome the crisisfundamentally and stabilize the finance, the government reformed China’s currency system to control inflation. The currency reform in1935changed the scene ofChinese-funded banking. After the currency reform, money supply increased steadilyand the Chinese-funded banking developed rapidly. But at the same time the Nanjingnational government withdrew the commercial banks’ distribution rights of notes,and the government strengthened the control of the banking.Meanwhile, in the case of domestic commercial and industrial decline, theChinese-funded banking also timely changed the investment and lending. On the onehand, under the stimulation of high-yield, the Chinese-funded banking invested a lotof money to government bonds and real estate, and gained a huge profit. On theother hand, despite of the effects of the industrial depression, banks’ loan wastemporarily unable to recover, and the banking suffered from involvement and losses.But the Chinese-funded banks increased the loans and investments to enterprises,especially industrial enterprises, and strengthened the links between them. In supportof the bank funds, most of the business situation of enterprises began to improve.And banks not only gained benefit, but also the safety of its own funds obtained acertain degree of protection. In addition, in response to the crisis, the role of theBanking Trade Association can not be ignored. On the one hand it organized thebanking to actively help themselves, on the other hand it represented the banking toseek the assistance of the government. The Banking Trade Association also madetheir own efforts and played an important role in the process of saving the marketand coping with the recession.The Great Depression had a far-reaching impact on Chinese-funded banks.After the Great Depression, the development of Chinese-funded banking entered anew phase, which obtained a dominant position in the whole financial system. But atthe same time the state capital also occupied the absolute dominance innation-owned banking, and the National Bank and financial monopoly capitalformed. We should learn the measures and experience that Chinese-funded bankingdealt with the recession in the Great Depression, which might be able to providesome references for China’s economic development today.