Capital Accumulation and Investment Strategies in Early Modern China: The Case of the Furong Salt Yard

Abstract

��� Analysts of China's economic backwardness in the late imperial period have tended to focus on two causal factors, labor surplus and low levels of capital accumulation. Their role as disincentives to industrialization was most dramatically demonstrated in the late nineteenth century movement known as self-strengthening, when unprecedented inputs of government funding and privileged access to markets were deemed necessary to bring about even the low levels of modernization that China then achieved. This focus on Westernized industry has had the effect of diverting attention away from the internal logic of China's indigenous industrial development, a tendency abetted by a paucity of data on individual handicraft and industrial establishments. In this study I attempt a different approach to the problem of industrial investment in the late imperial period. It is based on the assumption that where potential profits were deemed sufficiently large, institutional mechanisms could be developed to overcome the weaknesses in Chinese capital markets.2 The Furong salt yard in southern Sichuan provides an excellent venue for an examination of innovative investment practices. During the eighteenth and nineteenth centuries well salt production here developed under conditions marked by high risk and profitability, expanding markets, and significant technological innovation. Most important, as production costs rose and the time necessary to bring wells into production increased, sophisticated contractual arrangements evolved to facilitate the infusion of venture capital into the industry.3 At Furong's wells and 1 Research on this article was carried out with the financial support of the Committee for Scholarly Communication with the PRC and the National Endowment for the Humanities. The author would also like to thank Thomas Rawski and the anonymous referees for their comments and advice. 2 Tim Wright's work on the Chinese coal industry has demonstrated that profit expectations and not an absence of capital were the crucial element governing investment in this industry as well. See for example Wright, 322-24. 3 The Furong salt yard would appear to support Alexander Gerschenkron's thesis that original accumulation is rarely an obstacle to development. Rather, backward countries develop substitutes, often institutional, for the large initial capital reserves available in earlier developing states. Gerschenkron, 33-46.