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; Yale University - International Center for Finance; Zebra Capital Management, LLC

Chicheng Ma

The University of Hong Kong

Andrew Sinclair

The University of Hong Kong

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 ( email )

Pokfulam Road
Hong Kong
China

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520-8200
United States
203-432-5948 (Phone)
203-432-6970 (Fax)

Zebra Capital Management, LLC ( email )

612 Wheelers Farms Road
Milford, CT 06461
United States

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

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