Did the Nationalist Government Manipulate the Chinese Bond Market? A Quantitative Perspective on Short-Term Price Fluctuations of Domestic Government Bonds, 1932–1934

Abstract

Based on a newly constructed set of data, this paper offers a quantitative perspective on the Nationalist Government’s relations with China’s domestic bond markets during the period 1932–34. For all the recent revisionist scholarship on the achievements of Nationalist state-building, the perception of the Nationalist elite as corrupt is still widely accepted. In order to demonstrate the empirical potential of quantitative financial history, this paper tests one particular assertion: that members of the Nationalist elite manipulated the issue price of domestic government bonds in order to enrich themselves and their associates. We test this by calculating two price data correlations: that of a first sample of government bonds, all of them issued before 1932, and that of a second sample of government bonds, which includes bonds issued during the period under review. The price fluctuations of the first sample are correlated with each other to a much higher degree than those of the second sample. This indicates that the prices of bonds in the first sample were reacting similarly to the same range of influences, while the bonds issued during the period under review and included in the second sample were displaying individual price fluctuations. One possible explanation for this is that members of the Nationalist elite enriched themselves or their associates by issuing domestic government bonds at artificially low prices. In sum, the article illustrates both the potential and the limitations of quantitative history: it allows us to test and dismiss a precisely formulated hypothesis about Nationalist corruption, but it is only one possible way in which statistical analysis can be applied and does not cover the whole Did the Nationalist Government Manipulate the Chinese Bond Market? realm of state practices.