------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (August 2008)

Tomoko Shiroyama, _China during the Great Depression: Market, State, and 
the World Economy, 1929-1937_. Cambridge, MA: Harvard University Press, 
2008. xvii + 325 pp. $45 (hardcover), ISBN: 978-0-674-02831-9.

Reviewed for EH.NET by Niv Horesh, Faculty of Arts and Social Sciences, 
University of New South Wales.


The Great Depression and its underlying causes and multiple effects have 
long engaged economists, economic historians and theorists. Studies of 
the financial turbulence preceding World War II include classics by 
Friedman and Schwartz (1965), Kindleberger (1973) and Eichengreen 
(1992).[1] These have been recently supplemented by books aiming to link 
events in the U.S. with the rest of the world. Some of these new books 
have been reviewed on EH.NET, but none to date has centered exclusively 
on China.[2]

Tomoko Shiroyama?s monograph is, therefore, a much-awaited and highly 
valuable contribution to the literature. Its narrative is comprehensive, 
globally-framed and thick with quantitative data. For these reasons, it 
would no doubt appeal to economists and China specialists alike.

In her introduction, Shiroyama clearly sets the tone for the chapters to 
come. While the Great Depression was ?a watershed in the making of 
modern China,? its implications are often downplayed by students of 
China?s pre-war economy. The latter believe, for the most part, that 
China was shielded from deflationary pressures due to its adherence to 
the silver standard. Chapter 1 explains the intricacies of the silver 
standard, which China did not abandon until late 1935, whereas other 
Asian countries had switched to gold-based currencies by the 1910s. 
Shiroyama then argues persuasively that the depreciation of world silver 
prices during the 1920s greatly improved China?s terms of trade and was 
a boon to its farmers and emergent industrialists. However, the price of 
silver began to appreciate on world commodity markets as of 1931, and 
spiked up sharply in the lead-up to Roosevelt?s Silver Purchase Act in 
1934. By then, dearer silver and slumping demand in the West had hit 
Chinese exports and dampened the price of domestic produce.

Chapters 2 and 3 depart from the subject matter to discuss the rise of 
Chinese-owned cotton-spinning mills and mechanized silk filatures in the 
Lower Yangzi Delta between 1895 and 1930. This portion of the book might 
have benefited from clearer linkages with subsequent chapters and from 
tighter writing. Uninitiated readers will find in these two chapters a 
fairly informative overview of Chinese corporate structures and capital 
mobilization in the early twentieth century. But they might wonder, for 
example, precisely what distinguishes a Chinese ?native bank? from a 
Chinese ?modern bank? or whether China really ?had no financial 
institutions such as stock markets? until 1920 (p. 63). In fact, Chinese 
company stocks were traded in Shanghai as early as the 1880s. Similarly, 
when discussing loans made by HSBC to ?native banks? (read: money shops 
or qianzhuang) in Shanghai between 1923 and 1929, Shiroyama states that 
these amounted to ?52.6 percent of the total amount lent? (p. 77). But 
it is not clear whether the total in point refers to HSBC?s entire loan 
portfolio, loans to Chinese banks broadly defined, or just loans to 
money shops.

Chapters 4 through 6 present very compelling evidence. Here, Shiroyama 
explains in detail how the slump in global trade volumes gradually 
depressed Chinese primary product prices. At first, the Depression was 
offset in China by ascending gold prices which made Chinese exports more 
competitive. After 1932, however, rural welfare was seriously hampered 
because cash crops like raw cotton or silkworm cocoons were fetching 
less than rural households needed in order to purchase food supplements 
such as rice, salt and oil (pp. 98-99). The diminishing purchasing power 
of farmers eventually meant a shrinking domestic market for industrial 
goods and a pernicious flight of silver capital from the hinterland to 
Shanghai, fuelling a real estate bubble there (pp. 146-148). Then the 
American Silver Purchase Act of June 1934 dealt a severe blow to the 
Chinese economy, because it made China?s silver-based currency 
appreciate again, and rendered Chinese exports still less attractive 
(pp. 153-161).

Chapters 7 and 8 recount how China?s Nationalist government steered 
China away from the silver standard to combat the Depression in the face 
of Japanese aggression. Painstakingly drawing on U.S. and British 
archival sources, Shiroyama emphasizes the critical role played by the 
Roosevelt administration in facilitating the KMT?s move off silver and 
in China?s transition to fiat currency. The British envoy to the region, 
Frederick Leith-Ross, is often credited with devising China?s currency 
reform in 1935, but Shiroyama observes that Britain?s role in the reform 
has been greatly exaggerated (p. 180).

While presenting a useful overview of previous chapters as well as a 
sketch of monetary policy in China to 2005, the conclusions do not 
readily cohere into strong statements. Earlier reference to the debate 
between Thomas Rawski and Milton Friedman about the severity of the 
Great Depression in China might have helped sharpen the analysis toward 
the end but, surprisingly, Friedman?s body of work does not seem to have 
been consulted, and is not cited in the bibliography. Still, Shiroyama?s 
book is sufficiently packed with other detail and incisive observations 
to enthrall anyone interested in the Great Depression and Chinese 
economic performance under KMT rule.

References:

1. Milton Friedman and Anna J. Schwartz, _The Great Contraction, 
1929-1933_, Princeton University Press, 1965; Charles P. Kindleberger. 
_The World in Depression, 1929-1939_, University of California Press, 
1973; and Barry Eichengreen, _Golden Fetters: The Gold Standard and the 
Great Depression, 1919-1939_, Oxford University Press, 1992.

2. See, for example, Patricia Clavin, _The Great Depression in Europe, 
1929-1939_, St. Martin's Press, 2000; Thomas E. Hall and J. David 
Ferguson, _The Great Depression: An International Disaster of Perverse 
Economic Policies_, University of Michigan Press. 1998; Mark Wheeler, 
editor, _The Economics of the Great Depression_, W.E. Upjohn Institute, 
1998; Elmus Wicker, _The Banking Panics of the Great Depression_, 
Cambridge University Press, 1996; Randal Parker, _Reflections on the 
Great Depression_, Edward Elgar, 2002; and W.R. Garside editor, 
_Capitalism in Crisis: International Responses to the Great Depression_, 
St. Martin's Press, 1993.


Niv Horesh, who is a Lecturer in Chinese Studies at UNSW, has recently 
finished _The Bund and Beyond_ (forthcoming, Yale University Press), a 
study of British banking in pre-war Shanghai.

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