Banking on the Confucian Clan: Why China Developed Financial Markets So Late

52 Pages Posted: 25 Sep 2020 Last revised: 6 May 2021

See all articles by Zhiwu Chen

Zhiwu Chen

University of Hong Kong, Faculty of Business Economics (HKU Business School); Asia Global Institute, University of Hong Kong

Chicheng Ma

The University of Hong Kong

Andrew Sinclair

The University of Hong Kong; California Institute of Technology

Date Written: August 8, 2020

Abstract

Over the past millennium, China has relied on the Confucian clan to achieve interpersonal cooperation, focusing on kinship and neglecting the development of impersonal institutions needed for external finance. In this paper, we test the hypothesis that the Confucian clan and financial markets are competing substitutes. Using the large cross-regional variation in the adoption of modern banks, we find that regions with historically stronger Confucian clans established significantly fewer modern banks in the four decades following the founding of China’s first modern bank in 1897. Our evidence also shows that the clan continues to limit China’s financial development today.

Keywords: financial development, financial history, Confucianism, clan, risk sharing, resource pooling, banking

JEL Classification: G21, N20, O16, Z12

Suggested Citation

Chen, Zhiwu and Ma, Chicheng and Sinclair, Andrew, Banking on the Confucian Clan: Why China Developed Financial Markets So Late (August 8, 2020). Available at SSRN: https://ssrn.com/abstract=3671280 or http://dx.doi.org/10.2139/ssrn.3671280

Zhiwu Chen

University of Hong Kong, Faculty of Business Economics (HKU Business School) ( email )

Pokfulam Road
Hong Kong
Hong Kong

Asia Global Institute, University of Hong Kong ( email )

Room 328-348, Main Building
The University of Hong Kong
Pokfulam
Hong Kong

Chicheng Ma (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Andrew Sinclair

The University of Hong Kong ( email )

Hong Kong

California Institute of Technology ( email )

United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
554
Abstract Views
2,226
Rank
75,910
PlumX Metrics