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The Origin and Development of Credit Management in the Chinese History

This research project was commissioned by Gold Partners and conducted by Mr. C. H. Chan, Language Instructor, and Dr. Y. C. Soo, Senior Language Instructor, School of Chinese, University of Hong Kong

Credit control or loan management is a relatively new concept. This is the result of the diversification of modern business activities, a better set of business laws and regulations and the maturing of the business environment. In China, it has never been considered ethically correct to emphasize profit, so much so that unusual constrains have been put on the business class. Business activities, especially in the field of finance, were thus deprived of the necessary impetus to develop. Although many financial practices, such as mortgaging, bills of exchange, credit and loans, taxation, have a long history of existence, they have not evolved or have been developed in any systematic manner. Thus credit and loans and the collection of debt as a profession was never established in ancient China.

To collect debt and to lend money are two corresponding concepts. Where there is lending there needs to be debt collection; one needs to collect outstanding debts in order to do further lending. The lending of money and debt collection exist as economic activities in any society. In the old days when commercial activities were not very developed, lending and debt collection were quite simply and effectively carried on as one activity. There was no need for any intermediary. The money lending business has had a very long history in China. According to the Ritual book of Zhou dynasty (1122-249 BC), the local government officials responsible for managing the economic activities of the state had subordinates, “Quan Fu”, specializing in managing tax revenue, regulating the supply and pricing of goods and managing the credit and lending business. Subsequently, government officials in other dynasties were involved in lending activities, with official departments managing such activities.

At times, the borrowing required assets (gold and silver, precious goods, land) as collateral, “Zhi Ku” in Tang Dynasty (618-907 AD), “Di Dang Ku” in the Song Dynasty (960-1279 AD). At other times the borrowing was without collateral (there are records of royal edicts to waive debts as a result of bad harvests in the times of Emperor Han Chao (86-74 BC) and Emperor Han Huan (147-158 AD) of the Xi Han (206 BC – 25 AD) and Dong Han (25-220 AD) period. More often than not, the interest rate charged on the borrowing throughout the various dynasties was invariably high (30% per month) and it was questionable whether the public received any benefit. As a result, the official records of the government lending authorities were also government officials. It was rare to have a default on any repayment. Consequently, the government never had a professional organization for the collection of debt.

Among the common people though, the money lending business is active and thriving. There is frequent mention of professional debt collectors in historical records. However, these debt collectors very often turned into moneylenders. Due to the lack of a mature environment and suitable conditions, debt collecting was unable to survive, and lost the opportunity to develop into an independent industry. According to the Guan Zi, as early as the “Warring States Period” (475-221 BC), there were people who made their living by lending. In the Zhan Guo Ce and Shi Ji, there are detailed descriptions of Meng Chang Jun, Tian Wen of the State of Qi using the interest from making loans to keep his contingent of followers. Feng Huan and Wei Zi among them can be considered “professional” debt collectors. The term “Zi Qian Jia” was used in Shi Ji to denote families which lend for interest in the early Han (206 BC – 7 AD) period. Money lending and debt collecting appeared frequently in historical records since that time. For instance, San Guo Zhi and Wu Zhi describes how Pan Zhang was always having creditors coming to his door. From the time of Tang and Song, as overseas trade developed and due to a booming economy, the credit and lending activities grew and the mortgage business prospered. A system of “bill of exchange” emerged and a set of terms denoting money lending was coined. Literary works such as Jing Ben Tong Su Xiao Shuo, San Yan Er Pai, Liao Zhai Zhi Yi, Hong Lou Meng or known as Story of Stone, Er Shi Nian Mu Du Zhi Guai Xian Xiang, in the Ming (1368-1644 AD) and Qing (1644-1911 AD) period attested to the popularity of the lending business. Thus, lending and borrowing has been going on for 2,300 years, yet debt collecting as a profession has never been able to develop independently.

The role of debt collector and its development deserves some exposition. Debt collectors in ancient times worked for the rich. This is understandable. Only the rich can afford to lend but would not be bothered with going after debtors themselves and had to reply on someone else. Lord Meng Chang Jun of the State of Qi had tow colorful debt collectors, Feng Huan and Wei Zi. Feng Huan would make an agreement with those who could repay the date of repayment but would burn the promissory note of those who could not repay in order to promote his master’s reputation as a benevolent nobleman. He was a real master debt manager indeed. Wei Zi collected the dues from the fiefdom of Meng Chang and made loans from it to the good and able. Apparently the loans were not repaid and Wen Zi was duly reprimanded. When Meng Chang Jun lost his power, Wei Zi and all the debtors repaid their master’s benevolence by committing suicide in front of his mansion. These two stories show that debt collectors of ancient times, while performing their duties of reclaiming loans, were also considerate to both parties concerned. Furthermore, debt collectors, being well versed in accounting, knowledgeable in economics, were able to manage financial matters independently and to act objectively and decisively, could be considered to have the attributes and potential of modern day professionals. Constrained by their times and environment, these individuals were not given the chance to further themselves as a group.

In the Han (206BC – 7AD) period, debt collection played a more proactive role. According to Han Shu,, a certain rich family made available a large sum of money to a moneylender who in turn lends it out for a huge profit. Moneylenders then could collect their interest in cash or in kind. This appeared in a petition to the emperor to bring his attention to a serious social problem. From this we can see lending and borrowing is very common in Han China. Since the Han, land annexation became rife, forcing more and more lending and borrowing. To optimize their profits, debt collectors became moneylenders themselves, thus ending the collecting trade as a profession. Further down the ages, there has not been any significant change in the mode of lending-borrowing and the relationship between the parties concerned. Powerful families in the Qing period made loans and let their household staff or servants or family members to collect for them. The Story of the Stone has many incidences of such dealings. Madam Wang Xi Feng needed the interest from loans to keep up family appearance and Wu Tou Zhuang was the manager of the Jia family.

Finally, it is worth mentioning the participation of government. Before the Tang dynasty, the scale of economic activities was relatively small. Government was rather low key in the monetary amount of lending the quality control of the lending done. After the Tang dynasty, with the rapid economic development triggered by overseas trade, government started to directly or indirectly participate or regulate lending activities. Mortgages in the Tang era were mostly held by the government or the aristocracy, who monopolized the lending business. In the Song dynasty, involvement was more indirect, but the controversy and influence of government was not insignificant. According to Rong Zhai Sui Bi, there was an emperor taking the throne who wanted to release al the outstanding debts in the kingdom. The notion was rejected because it would make all lenders go out of business. But this was sufficient to lead to criticism by the officials and dissatisfaction from the common people. During the Ming dynasty, the state became even more involved. There were many provisions in Ming laws restricting government officials (especially military officials) from participating in private lending activities. Following the Ming system, the Qing dynasty also used laws to regulate lending; there were clear evidence of regulations governing lenders and their activities.

Generally speaking, the opening up of a country is a motivating force for economic development. Given the specialization required in today’s economic activities and the close correlation between different units, the proliferation of the financial sectors is certain to stimulate the lending and credit business and the development of account management.

More researches articles are published in the Chinese section of this website.


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