Su Qi / Deputy Chief Editor, Caijing Magazine / 2015-03-08
Industrial development in China has been plagued by all kinds of failures, and people are not unaware of the causes: a conservative social structure, overexploitation by the state, lack of capital, and a cultural bias against commerce. With all thatsaid, in her book The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China, Madeleine Zelin paints a rather unknown picture of the salt business in Zigong, Sichuan province based on her research and provides new perspectives of Chinese commerce in earlier ages.
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The rise of the Taiping Rebellion disrupted trade routes between two saltworks onthe east and west sides of the Huai He River, as well as Hunan and Hubei provinces in the middle part of China. Well salt manufacturers from Zigong, Sichuan seized the golden opportunity to fill the market void and make handsome profits in the region after investment.
Familial connectionswerekey to the success of Sichuan salt merchants. Capital and management resources are more accessible thanks to the familial ties. The same descendant line helped entities expand and become major investors, who then used their earnings to explore business opportunities in auxiliary industries, sales and halogen gas, which in turn helped them generate more wealth. Through managing wealth in an all-encompassing manner, Sichuan salt merchants pressed ahead both horizontal and vertical integration of the enterprise. They enjoyed the merits of a scale economy and locked down greater market shares.
A big family in the past was almost the same as a company in modern times. Almost all saltworks functioned based on the family clan as the fundamental infrastructure. The bamboo slips used for boiling and filtering salt from wells were bought with family money. People belonging to the same family gathered their money together for management and redistribution according to family rules. These assets would be passed on to or inherited by younger generations to avoid splitting up. Such a regime enabled family assets to function as a crucial source of investment.
Meanwhile, big families had great potential in human resource mobilization and management. A whole management scheme was developed based on family rules, coupled with complex cooperative structures to take heed of internal affairs and external businesses. Aside from an accountant as a bookkeeper, there were several other stewards who were entitled to overlook farmlands, family schools, ancestor worship, comprador, renovation, cow feeding and storage, among about 20 other types of duties. This system branched outward a few more levels to meet family needs.
Another family hierarchy worked to serve the vertical development of business. Vertical integration has multi-faceted advantages at the primary stage of capital development of the salt industry. They had almost the same importance as the structural breakthrough that took place in textiles, petroleum and steel companies in the U.S. during the Industrial Revolution. Company owners spared no effort in monopolizing all types of resources and displaced manufacturers who were incapable of integration.
Spinners from New England combined the steps of cotton carding, spinning, weaving and dying together; Exxon Mobil bundled up crude oil refining and sales; Zigong salt merchants also managed to integrate all manufacturing processes by securing supply sources to maximize productivity. The more effectively they produced halogen gas, the more they were enabled to work nonstop to ensure an expansion of their salt market. By owning both the salt well and mill, salt manufacturers could have access to a steady supply of brine and gas. They later marched into the development brine ditches for full control of brine marketing and sales.
What differentiated small manufacturers and salt conglomerates was the scale of production, as well as how they combined their efforts in manufacturing and sales. By dominating Sichuan salt suppliers, these family companies ensured what they produced was among the first batch to be sold. They were eligible to stack up seasonal materials or products due to their huge capital reserves. They diversified their business, including credit lending, by branching out to nearly all industries related to salt production.
Sizable salt manufacturers had managed to encompass all aspects of salt manufacturing by the mid-19th century, including salt well development, salt boiling, and salt sales. They also possessed a great amount of agricultural land to provide feed for oxen and food for employees. Some business houses were also involved in selling products from salt markets in Chongqing and providing daily necessities that helped run the wells and tanks. Companies, who usually kept their hands off manufacturing and sales, bought daily products from invested firms. This resembled the chain management and partnership mechanism adopted by New England spinners.
Furthermore, to conduct swift information and feedback gathering and for better coordination among big salt families, a mature and refined communication system was built with investment from these families themselves. Quite a few efficient personal messaging services, such as Dabang and private delivery agencies, were developed to satisfy needs from the business industry and other trade interest groups. Seven major delivery agencies founded in Chongqing and Hunan expanded their services from the middle part of Sichuan to Gansu, Yunnan and Guizhou provinces. There was an entry called “fast foot” on the family budget book, providing evidence of running services sending urgent messages between the headquarters of these agencies and their divisions in the rest China.
Zigong salt manufacturers formed an entirely new labor environment from the traditional Chinese manufacturing business. Urbanization provided stable and full-time positions for workers and contributed to the emergence of labor divisions and management levels. Meanwhile, workers alleviated shocks from work and cities. Regional associations formed different groups on the basis of religion and former regimes for the purpose of unification.
Most large Zigong salt manufacturers have incorporated a complicated and multi-layered business model by the end of 19th century. These enterprises were equipped with independent storage rooms under comprehensive management. Although the existence of these storage rooms still held some old traditions, more specialists from outside the family were employed for administration work, which was an important step in professional management. Labor divisions within the salt mills had already been introduced in the middle of the Qing Dynasty with increasing complexity. Workers’ training systemswere in line with the supervising mechanism in the units. The upper management level was a modern equivalent to white collar workers in the West.
The most critical reason for the success of this new arrangement was giving openings to non-family members before the “big family” meventually failed. Starting as a manager, these “outsiders” ended up owning the entire company, marking the integration of management professionals and company capital. They learned how to do business as managers, and liaison with salt carriers, manufacturers and suppliers. When a family-based company slid to the edge of failure, they could use their relationship with the enterprises as the foundation for building their own empire.
The well-shaft and salt well maintenance techniques adopted by Zigong salt businesseswere parallel to what the western world possessed in the 19th century. Exploiting salt rock at scale became possible after outside investors were invited to buy company shares. China became the first country to use dissolving techniques to produce salt. This triggered huge changes in brine production and management, and it improved the mechanic level and efficiency of salt production. The introduction of the dissolving technique contributed to the significant rise of brine production. Now the major cap on the production of salt dwells on theamount of fresh water poured into a salt well, the size of the brine tank, and the times for lifting the tank.
With the ships’ arrival in Hubei and Sichuan provinces, salt manufacturers acknowledged the power of steam, which was used very soon after for experiments in brine absorption from the deep wells. The ensuing tight scope of salt manufacturing facilitated the spread of this new technology. The discovery of salt rock, development of new types of salt wells, and the introduction and improvement of mechanical brine absorption perfectly interpreted the notion of “technique dependence” –wherein one technical progression is likely to give rise to another.
The shift in market size and emergence of applicable technologies propped up industrial investment and production. Internal and external capitalwas gathered together for investment.
With the help ofexternal capital, the mechanical brine-absorption process contributed immensely to the salt mills at their primary stage. Locomotive cars purchased by foreign merchants who were active in banking and manufacturing industries in Chongqing were used at early stages. They founded brine-absorption companies without ownership of salt wells, but gained huge advantages from their knowledge of Hanyang (a downstream city), the rise of the mechanic business in Shanghai, as well as the long trade history between Chongqing and Zigong. They maintained good relationships with those at the management level of the “big families” so as to keep the market dominance of Sichuan salt. It has been proven that issues generally perceived as development barriers including imperial rule, lack of commercial law enforcement, capital accumulation and acknowledgement of new technologies, will be easy to overcome in the face of ample profit.
With remarkable achievements in capital accumulation, organization and management, production expansion, and adoption of steam power, Zigong salt merchants painted a more complex landscape of modern China’s industry for the world. (Translated by Feng Suwen)
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