“Political Connections and the Rise and Fall of Native Banks in Historical China” by Chicheng Ma
Hong Kong University of Science and Technology
It remains a puzzle why a prosperous native banking sector (piaohao) declined rapidly after the end of the dynastic rule (1911) in China. Drawing upon a unique data of bank branches in 17 provinces between 1823 and 1927, we find that the number and business of branches increased significantly in provinces where the provincial officials came from the hometown of the bank headquarters. But ironically, these provinces experienced a greater decline of branches after the Qing dynasty collapsed. These results suggest a two-edged effect of political connections on financial development in a historically autocratic regime.