Family Business in China, Volume 1: A Historical Perspective [1st ed.] 9783030513948, 9783030513955

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PALGRAVE MACMILLAN ASIAN BUSINESS SERIES

Family Business in China, Volume 1 A Historical Perspective Ling Chen · Jian An Zhu · Hanqing Fang

Palgrave Macmillan Asian Business Series

Series Editor Yingqi Wei Business School University of Leeds Leeds, UK

The Palgrave Macmillan Asian Business Series publishes theoretical and empirical studies that contribute forward-looking social perspectives on the study of management issues not just in Asia, but by implication elsewhere. The series specifically aims at the development of new frontiers in the scope, themes and methods of business and management studies in Asia, a region which is seen as key to studies of modern management, organization, strategies, human resources and technologies. The series invites practitioners, policy-makers and academic researchers to join us at the cutting edge of constructive perspectives on Asian management, seeking to contribute towards the development of civil societies in Asia and further a field. Each submission is submitted for single blind peer review. For further information please see our website: https://www.palgrave.com/gp/bookauthors/your-career/early-career-researcher-hub/peer-review-process. To submit a book proposal for inclusion in this series please email Liz Barlow at: [email protected]. Details of how to download a proposal form can be found here: https://www.palgrave.com/gp/bookauthors/publishing-guidelines/submit-a-proposal.

More information about this series at http://www.palgrave.com/gp/series/14420

Ling Chen · Jian An Zhu · Hanqing Fang

Family Business in China, Volume 1 A Historical Perspective

Ling Chen Zhejiang University Hangzhou, Zhejiang, China

Jian An Zhu Zhejiang University City College Hangzhou, Zhejiang, China

Hanqing Fang Business and Information Technology Missouri University of Science and Technology Rolla, MO, USA

ISSN 2661-8435 ISSN 2661-8443 (electronic) Palgrave Macmillan Asian Business Series ISBN 978-3-030-51394-8 ISBN 978-3-030-51395-5 (eBook) https://doi.org/10.1007/978-3-030-51395-5 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgments

We would like to express our deep and sincere gratitude to the Ministry of Education Youth Foundation of Humanities and Social Sciences, China for the funding (ID: 19YJC630238) that supports this study. We also thank Lv Jin Shui Family Business Research Foundation of Zhejiang University for supporting the translation of the manuscript.

v

This book series has two volumes. This introduction is for Volume 1, which draws more attention to the past of family, family business and business family in China. Volume 2 puts more emphasis on the present and future of family business and business family in China.

Contents

1

Introduction Family Business in China Research Motivation and Theoretical Framework References

Part I

1 1 3 12

Social Foundation of Family System in Ancient China

2

Household and Family Concept of “Family” in China Solidarity Relations in Chinese Family References

17 17 22 28

3

Family: Economical, Social, and Educational Functions Economic Functions Social Functions

29 29 32 ix

x

4

Contents

Educational Functions References

33 35

Characteristics of Chinese Family System Introduction Lineage (宗族) Patriarchy and Patrimonialism (男权家长) Household Division and Wealth Inheritance (诸子均分) Family as a Model for the State (家国同构) Interdependence Among Four Dimensions References

37 37 38 46 50 57 59 60

Part II 5 6

7

8

Households and Family Lineages in Modern China (1850–1949)

Society and Family Lineages in Modern China (Qing Dynasty)

65

Transformation of Family Lineages in Modern China and the Rise of Family Enterprises Introduction The Rong Family of Wuxi References

71 71 74 79

Two Cycles of Development of Family Enterprises in Modern China First Cycle Second Cycle The Cao Family of Pudong, Shanghai Reference

81 81 86 89 91

Modern Chinese Family Lineages and the State

93

Contents

Part III

Evolution of Family System Before and After the Reform Era

9

The Rise of Family Business in China Before 1949 Background New Era Family Entrepreneurs Rong Brothers: A Case of New Era Family Enterprise References

10

Dynamics of Family Enterprise Before and After the Reform Era Introduction Family System Before 1977 Eliminating Households: A Social Experiment Family Household in People’s Commune Dynamics of Family System After 1977 Rise of Family Business in Contemporary China: A Case of Mao Family References

11

Conclusion

Index

xi

99 99 101 104 131 133 133 134 135 137 141 163 175 177 179

List of Figures

Fig. 1.1 Fig. 1.2 Fig. 6.1 Fig. 9.1 Fig. 9.2 Fig. 9.3 Fig. 10.1 Fig. 10.2

Overarching theoretical framework Geographical distributions of cases The basic genealogy of the Rong family Zongjing Rong’s family tree Desheng Rong’s family tree Rong family members and their jobs in the family enterprise “Are People from Wenzhou really Stupid?” Migration of Businesspersons From Wenzhou The Mao family tree

8 12 77 113 114 123 160 167

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List of Tables

Table 9.1 Table 10.1 Table 10.2

High-Level positions in the Rong family enterprise Household structures in five cities in China Housework between Husband and Wife, China

124 153 157

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1 Introduction

The history mirrors both thriving and calamity (以史为鉴, 可以知兴替). —Li, Shimin, Emperor Taizong of Tang (唐太宗李世民, 566–635 )

Family Business in China There is an increasing recognition that family firms are the dominant form of business organization (La Porta et al. 1999). Gersick et al. (1997) estimate that up to 80% of worldwide enterprises are family owned while La Porta et al. (1999) suggest that most of the economies are controlled by a limited number of wealthy families. It is found that 44% of publicly corporations in major European countries (Facccio and Lang 2002) and up to 33% of the S&P 500 in the United States (Anderson and Reeb 2003) are controlled by families. Just like other economies, family firms are strongly prevalent, if not more so, in China (Sharma and Chua 2013). Unlike other economies, family businesses in China are greatly affected by the derived Confucian © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_1

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culture, excessive marketization, as well as the seemingly endless institutional supervision by a transitional Chinese government. In fact, the literature largely suggests that the prevalence and prosperity of Chinese family firms are due to many contextual features which include, but are not limited to, information asymmetry (Lu et al. 2013), relational strength (Song and Wang 2013), guanxi networks (Dou and Li 2013) and ownership concentration (Deng et al. 2013). The literature also highlights that the Chinese context provides a valuable yet unique opportunity to study family business for a number of reasons. To begin, business in China is particularly tied to the central role that family plays; hence the substantial influence of family involvement in business might be further pronounced (Liden 2012). This makes family governance as the “default” setting in which entrepreneurs begin their business ventures. This also makes the family business as the most common form to transfer family wealth and social status from one generation to another. In addition, as the Confucian culture strongly supports the value of family ties in maintaining group solidarity and social order (Gupta and Levenburg 2010), family-centered concerns might be given higher priority in affecting business decisions compared to those in Western economies. In addition, family firms in China were often created by the first-generation founders who started the business shortly after the 1978 “Open-up and Reform” (Huang 2008). This generation has reached the age of retirement, and family-centered concerns such as emotional attachment to the original business and intra-family succession might become particularly strong (Pistrui et al. 2001). Finally, as the market competition intensifies, family business leaders often struggle to find a way to develop new products, processes, markets, or sources of supply (Schumpeter 1934), for the purpose of remaining competitive in the market. Thus, family business in China also represents a valuable opportunity to study the importance of market competition on family firm behaviors and performances. Some might doubt that family businesses might hinder the feasibility of an equitable distribution of wealth that could eventually hinder economic reform. Others, in opposition, claim that the younger generation in control of Chinese family firms tend to be more entrepreneurial compared to the first-generation family leaders, and might even stimulate

1 Introduction

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economic potential by engaging in more innovative ways of doing business. Today, there is considerable myth and much curiosity concerning knowledge about family business in modern China, as well as a prevailing eagerness to learn about it. In fact, family business theorists, educators, and practitioners could benefit from a thorough investigation of Chinese family business traditions and experiences by taking a closer look at its past history, present status, and future prosperity.

Research Motivation and Theoretical Framework The most fundamental motivation behind this book series is to develop a theoretical framework that connects the past, the present and the future of family business and business family in China, with an emphasis on unfolding the historical legacy, articulating the current status, and presenting feasible recommendations to family business researchers and practitioners for future challenges. Given “family” as the most basic economic and social unit in China, also given the interaction between societal forces and family system, we use family sociology as the primary theoretical lens in developing our framework. We also include an anthropological angle highlighting the Confucian norms and values that guide people’s behaviors in China. Finally, given the emphasis on the “past-present-future,” we also include a historical angle in the framework. Thus, our theoretical framework can be best interpreted as an inter-disciplinary approach composed of sociological, anthropological and historic perspectives in studying family business and business family in China. In the following section, we will discuss sociological studies on family with a focus on its unique features and why applying a sociological perspective in combination with other theoretical lens might expand our understanding of Chinese family business and business family.

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Sociological Perspectives in Studying Family Sociology can be defined as a research discipline of social science with a focus on social activities, social relationships, and social interactions (Calhoun 2002). As a social science, sociology attempts to study social life as a whole, while other social disciplines often emphasize certain aspects of social life (Giddens et al. 1996). For instance, history studies the historical aspects whereas political science studies political aspects. Thus, it is sociology that provides an “overarching” theoretical interpretation that connects all social aspects together and presents a comprehensive picture regarding how our society and our social lives look like (Giddens et al. 1996). Family has long been a focus in the sociology. In fact, family sociology1 can be defined as a research area devoted to the study of family as a basic institution in the very center of social life (Scanzoni and Scanzoni 1976). Accordingly, family can be defined as a socially recognized group usually joined by blood, marriage, or adoption that serves as the most basic unit in a society (Chambers 2012). Common assumptions in family sociology include the universality of family, the inevitable variation of family forms, and the necessity of family for integrating individuals into social life (Treas et al. 2017). Historically, family sociology is generally concerned with the formation, maintenance, growth, and dissolution of family structure and kinship ties (Huber and Spitze 1988). Much of work presented families in structure and process as in the roles of parents and the process of parenting, various types such as nuclear and extended families, internal dynamics such as tensions in the family system, or basic life processes such as division of household labor. Some of the classic topics in family sociology include role differentiation among family members; family size, age and ethnicity; diversity of family forms; interaction among family members and its economic and social influences; social class and social mobility; the effect of social change on the family; among others.

1 Sociology

of family, sociological study on family, and family sociology are interchangeably used in this book.

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New topics are certainly emerging, and research continues to investigate the new social trends aligned with family system. The recent development of family sociology expanded to incorporate a variety of topics related to gender, sexuality, intimacy, cross-culture, emotion, and anything that can be conceptualized to be family-related (Huber and Spitze 1988). Today, family sociology grows to become one of the largest research fields in sociology with a wide range of topics. Also, family sociology has a historical focus in its orientation to changes, trends, and patterns in social changes and social reforms. While a review of the historical development of family sociology is beyond the scope of the book, it is important to recognize four definitive features of family sociology. To begin, family sociology treats the family as “dependent variable ” in terms of its connections with various social causes, and “independent variable” in terms of its connections with various social outcomes. This means, family sociology not only explores various antecedents that might affect the basic formation and variation in the family system, also it explores the social consequences of changes and variations in the family system (Bales and Parsons 2014). For instance, several family studies in the middle of twentieth century focused on the impact of the Depression on family structure, the migration of families from the country to the city aligned with the industrialization in the United States, and the rise of single-parent families (Furstenberg 1966; Greenfield 1961). At the same time, family sociologists also recognize the power of family system in affecting social matters, and relevant topics here include the economic, political, and social consequences stemming from the changing role of woman, the changing structure of the family, as well as the changing form of marriage (Kanter 1977). The second feature is the “openness” of family sociology aligned with other research disciplines. In fact, given the width of coverage in the sociology, it is not surprising that family sociology has often been combined with other sociology disciplines in explaining a variety of different topics such as poverty, crime, social inequality, and other at the societal level (Becker and Rau 1993). In this kind of interdisciplinary studies, family is often used as the basic unit of analysis, and a variety of different social phenomenon was interpreted as either causing or being caused by

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dynamics in the family system. For instance, in their book “The Polish Peasant in Europe and America,” Thomas and Znaniecki (1918) used the family as the “unit of analysis” in explaining the process of urbanization and industrialization as well as the migration of Polish peasants from rural to urban areas. In addition, research disciplines that go beyond sociology also adopt certain concepts from family sociology, such as the idea of family labor differentiation in family economics (Becker 1981). Nonetheless, such a feature might also stem from the fact that, earlier family sociology studies were often empirically driven and descriptive in nature (Esping-Andersen 2000; Tudor 2013; Warshay 1971). Third, family sociology often features a “bottom-up” approach in which researchers emphasize the aggregative effect of lower-level actives such as family structure on higher-level social phenomenon such as economic development, social reform, social mobility and migration (Klein and White 1996). In this regard, family sociology is born as a multilevel research area. As an example, one of the most classic focuses in family sociology is how the formation of the family as well as interactions among family member would affect the family’s social class, defined as social stratification in which people are grouped into a set of hierarchical social categories based upon income, wealth, social status, and derived power (Jencks et al. 1972). Such a focus is often coupled with inquires on the mobility of the family within or between layers or tiers in the hierarchy of social stratification as well as overall inequality in the society. In final, family sociology has the focus on comparative studies in its very heart (Glaser 1965). Indeed, a large number of family sociology studies were comparative within and between cultures, economies, communities, or even between past and present (Gauthier 1998). Some studies even compare families by race, geography, income, and occupation in one single economy or community (Huber and Spitze 1988). For the purpose of this book, we will make a comparison of family business in China with family business in Western context.

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Theoretical Framework in the Book As mentioned above, this book applies an interdisciplinary approach where we use the family sociology as the primary theoretical lens in combination with anthropological and historical perspectives. The anthropological perspective is included because family system and consequently family business and business family in China are often affected by traditional rituals and customs rooted in Confucian values and norms. The focus on anthropology helps address some “soft” issues such as religiosity, tradition, rituals, or culture in family business and business family. The historical perspective implies that what is present stems from the past, while what is future stems from the present. The inclusion of a historical perspective highlights the importance of cultural and economic legacy as well as certain historical moments such as the up and down of “One-Child Policy” in affecting family formation and structure in China, which eventually contribute to the heterogeneity of the behaviors and performances in Chinese family firms. Figure 1.1 summarizes our theoretical framework. Before we explain all dimensions included, it is important to note that such a theoretical framework is carefully chosen for several reasons. First, to follow the tradition of family sociology, family system is located at the very center of the model. That means, it is the family system that adapts to the changes in the external context, also it is the formation and variation in the family system that contribute to idiosyncratic yet heterogeneous behaviors and performances in family firms. Second, we choose to emphasize four definitive features of family system in China, which independently or interactively differentiate Chinese family system from those in the Western context. We will further discuss these four features in the following section. Third, according to the model, the influences of external context on family business can be divided into two distinctive paths. That means, not only external context might directly affect family business which has been well documented in the family business literature (Wright et al. 2014), there is also an indirect effect mediated by the family system.

Fig. 1.1 Overarching theoretical framework

Past

External Context Institutional System Economic Environment Market Competition Culture

Present

Family System Individual, Household and Lineage Patriarchy and Patrimonialism Household Division and Wealth Inheritance Family as a Model for the State

Future

Family Business Corporate Governance Strategic Behavior Corporate Entrepreneurship Performance

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Forth, the model also highlights reciprocal causality, which is relatively rare in the management especially in the family business literature. The model suggests that not only the external context might affect family system; also family system might collectively affect the dynamics in the context. Such a rationale is consistent with studies in public policy which highlights the importance of modifying government regulations to better address concerns stemming from the family systems such as declined family size and the rise of nontraditional families (Myrdal 1968). Such a reciprocal causality also exists in the relationship between family system and family business (and business family). In fact, the literature has long called for studies addressing the influences of the business on family system, which is also aligned with the research focus on “non-economic performance” or the realization of family-centered noneconomic goals based upon the family’s control in business. Finally, the model includes a historical perspective, which can be simply summarized as “the past affects the present which will affect the future.” This angle further highlights the dynamic nature of the model: all three components (context, family, and family business) and their causal interactions are developed in a path-dependent yet dynamic manner. For instance, a thoroughly understanding of China’s family system in present must be based upon the exploring of historical legacies or events that contribute to the formation of family system in the past.

Major Dimensions in the Theoretical Model As shown in Fig. 1.1, the three major dimensions included in the model are external context, family system, and family business. The external context includes institutional system related to government agency and industrial association; economic environment with dynamics in economy growth; market environment coupled with severe competition and fastpaced industrial life cycle; and last but probably the most important, the unique Chinese culture which stems from the legacy of Confucian values as well as other traditions and customs. Note that a large portion of book

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chapters will be dedicated to explaining rationales behind the rise and fall of family businesses and business families from 1850 to the present. Such a periodic range covers the late Qing Dynasty (1850–1912), Republic of China (1912–1949), and People’s Republic of China (PRC, 1949-now). In the book, Chapters 5, 6 and 7 will discuss the late Qing and Republic of China periods, and Chapters 8 and 9 will focus on the PRC period. Also, since the founding moment of PRC, we have observed numerous historical events contributing to changes in almost all aspects of social life, and of course family business and business family are not the exception. Hence, China, family in China, and family business and business family in China should better be conceptualized as a combination of “old” and “new.” The “old” refers to those dimensions stemming from and rooted in historical and cultural legacies. The “new” refers to social changes stemming from the Communist and Socialist governance and ideology aligned with the Communist Party, dramatic economic development, as well as critical government policies such as “Gender Equity Movement” and Cultural Revolution. Or as Levy highlighted (1949, p. 41), readers should be cautious in differentiating “traditional” China from “transitional” China, although a thorough understanding of “transitional” China must be based on rationalizing “traditional” China. Also, we carefully chose four shared features that differentiate family system in China from family system in western countries. These are (1) lineage; (2) patriarchy and patrimonialism; (3) bounded equal division of household; and (4) family as a model for the state. These four features are representatives of family structure, family’s governing principal, family inheritance principal, and the relation between the family and the state, respectively, hence they become a solid theoretical ground that can be used to discuss the distinctiveness of family in China and in the Western context. When discussing the historical development of family firms or enterprises in China, we have used a number of cases to further support our arguments. In order to enhance the conclusiveness of case analyses, we have carefully chosen those cases from family firms or business families in different life stages, in different historical eras, also located in

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different geographical areas in China. Figure 1.1 illustrates the geographical locations of the cases. Note that we intentionally chosen cases from the mainland China also from other territories where some immigrant Chinese business families choose to start their businesses. Also, for some cases, we have collected longitudinal information such that we are able to thoroughly discuss both the dynamics in business and the evolvement in the family over time. As audience might notice, most of cases we have included are from the coastal areas such as Yangtze Delta and the Pearl River Delta. It is possible that advanced economic and institutional environments in those coastal areas might affect the characteristics of family firms residing in these areas. For family firms, whether their idiosyncratic features stem from the local cultures and family traditions, or from the better industrial infrastructures or market systems? What might be the future prospect of these family firms? While this book intends to address some of these questions, it should be noted that family business studies in China are still in an early stage of development. We truly hope that this book can serve as a modest spur to motivate more scholars joining in this promising yet important research area. In the end, we also include a number of strategic decisions and firm performances as the final “outcomes” of family involvement in business in the Chinese context. Issues related to corporate governance, strategic behaviors, corporate entrepreneurship and performance in Chinese family business will be addressed in Volume 2 of this book series (Fig. 1.2).

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Fig. 1.2 Geographical distributions of cases

References Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P 500. The Journal of Finance, 58(3), 1301–1328. Bales, R. F., & Parsons, T. (2014). Family: Socialization and Interaction Process. London: Routledge. Becker, G. S. (1981). A Treatise on the Family. Cambridge, MA: Harvard University Press. Becker, H. S., & Rau, W. C. (1993). Sociology in the 1990s. Society, 30 (1), 70–74. Burns, I. R. (1973). Private Law in Traditional China (Sung Dynasty): Using as a Main Source of Information the Work Ming-Kung Shu-P An Ch IngMing Chi. Doctoral dissertation, University of Oxford.

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Calhoun, C. (2002). Dictionary of the Social Sciences. Oxford: Oxford University Press. Chambers, D. (2012). A Sociology of Family Life. Cambridge: Polity. Deng, Z., Hofman, P. S., & Newman, A. (2013). Ownership concentration and product innovation in Chinese private SMEs. Asia Pacific Journal of Management, 30 (3), 717–734. Dou, J., & Li, S. (2013). The succession process in Chinese family firms: A guanxi perspective. Asia Pacific Journal of Management, 30 (3), 893–917. Esping-Andersen, G. (2000). Two societies, one sociology, and no theory. The British Journal of Sociology, 51(1), 59–77. Faccio, M., & Lang, L. H. (2002). The ultimate ownership of Western European corporations. Journal of Financial Economics, 65 (3), 365–395. Furstenberg, F. F., Jr. (1966). Industrialization and the American family: A look backward. American Sociological Review, 31, 326–337. Gauthier, A. H. (1998). The State and the Family: A Comparative Analysis of Family Policies in Industrialized Countries. OUP Catalogue. Gersick, K. E., Gersick, K. E., Davis, J. A., Hampton, M. M., & Lansberg, I. (1997). Generation to Generation: Life Cycles of the Family Business. Boston: Harvard Business Press. Giddens, A., Duneier, M., Appelbaum, R. P., & Carr, D. S. (1996). Introduction to Sociology. New York, NY: W. W. Norton. Glaser, B. G. (1965). The constant comparative method of qualitative analysis. Social Problems, 12(4), 436–445. Greenfield, S. M. (1961). Industrialization and the family in sociological theory. American Journal of Sociology, 67 (3), 312–322. Gupta, V., & Levenburg, N. (2010). A thematic analysis of cultural variations in family businesses: The CASE project. Family Business Review, 23(2), 155– 169. Huang, Y. (2008). Capitalism with Chinese Characteristics: Entrepreneurship and the State. Cambridge: Cambridge University Press. Huber, J., & Spitze, G. (1988). Trends in family sociology. In N. J. Smelser (Ed.), Handbook of Sociology (pp. 425–448). Newbury Park, CA: Sage. Jencks, C., Smith, M., Acland, H., Bane, M. J., Cohen, D., Gintis, H., et al. (1972). Inequality: A Reassessment of the Effect of Family and Schooling in America. New York: Basic Books. Klein, D. M., & White, J. M. (1996). Family Theories: An Introduction. Thousand Oaks, CA: Sage. La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance, 54 (2), 471–517.

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Levy, M. J., Jr. (1949). The Family Revolution in Modern China. Cambridge: Harvard University Press. Liden, R. C. (2012). Leadership research in Asia: A brief assessment and suggestions for the future. Asia Pacific Journal of Management, 29 (2), 205–212. Lu, H., Tan, Y., & Huang, H. (2013). Why do venture capital firms exist: An institution-based rent-seeking perspective and Chinese evidence. Asia Pacific Journal of Management, 30 (3), 921–936. Myrdal, A. (1968). Nation and Family: The Swedish Experiment in Democratic Family and Population Policy. Cambridge, MA: M.I.T. Press. Kanter, R. M. (1977). Work and Family in the United States: A Critical Review and Agenda for Research and Policy. New York: Russell Sage Foundation. Pistrui, D., Huang, W., Oksoy, D., Jing, Z., & Welsch, H. (2001). Entrepreneurship in China: Characteristics, attributes, and family forces shaping the emerging private sector. Family Business Review, 14 (2), 141– 152. Scanzoni, L., & Scanzoni, J. (1976). Men, Women and Change: A Sociology of Marriage and Family. New York, NY, US: McGraw-Hill. Schumpeter, J. A. (1934). The Theory of Economic Development: An Inquiry into Profits, Capital, Credits, Interest, and the Business Cycle. Piscataway: Transaction Publishers. Sharma, P., & Chua, J. H. (2013). Asian family enterprises and family business research. Asia Pacific Journal of Management, 30 (3), 641–656. Song, H., & Wang, L. (2013). The impact of private and family firms’ relational strength on financing performance in clusters. Asia Pacific Journal of Management, 30 (3), 735–748. Thomas, W. I., & Znaniecki, F. (1918). The Polish Peasant in Europe and America: Monograph of an Immigrant Group (Vol. 2). Chicago: University of Chicago Press. Treas, J., Scott, J., & Richards, M. (Eds.). (2017). The Wiley Blackwell Companion to the Sociology of Families. Chichester: Wiley. Tudor, A. (2013). Beyond Empiricism: Philosophy of Science in Sociology. London: Routledge. Warshay, L. H. (1971). The current state of sociological theory: Diversity, polarity, empiricism, and small theories. The Sociological Quarterly, 12(1), 23–45. Wright, M., Chrisman, J. J., Chua, J. H., & Steier, L. P. (2014). Family enterprise and context. Entrepreneurship Theory and Practice, 38(6), 1247–1260.

Part I Social Foundation of Family System in Ancient China

2 Household and Family

Concept of “Family” in China Three Aspects of the “Family” The concept of “family” used in this book—the Chinese term jia (Chinese: 家)—refers to a unit of members related to each other by blood, marriage, or adoption featured by culturally defined role differentiations and solidarity among family members, the ownings of common property, the sharing of common production and common consumption, as well as the practice of common social activities (Eastman 1989; Lang 1946). When talking about family, there are three different aspects which provide three distinctive implications of the so-called family relationship also the whole family system. Firstly, the basic form of family is built upon marriage. While part of the marriage is driven by human nature, marriage is also defined and protected by social norms and legal regulations. Thus, marriage by definition implies certain rights and responsibilities shared by its participants—in common cases, husbands and wives. © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_2

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Secondly, family relationships also the overall family system are strengthened by blood or biological connections. Note that as a social unit, while admittedly most family members share father–son, mother– daughter, or this sort direct biological relationships, sometimes some family members may not share blood or marriage relationships with others. Examples here include adopted children, fictive kinship and pseudo-family relationships. Thus, certain family relationships might go beyond marriage or blood relationships. Finally, family is a basic social unit, and family members carry the rights and responsibilities of being one part of the family. As Engels noted, “(t)he terms father, child, brother and sister are no mere honorary titloes, but carry with them absolutely definite and very serious mutual obligations, the totality of which forms an essential part of the social constitution of these peoples” (1972, p. 33). That is to say, the family relationships here are not merely biological bonding featured by DNA and marriage, but also mutual rights and responsibilities defined by prevailing social norms and values. Here, family is viewed not only as a physical location in which a group of individuals live together and share every piece of joys and sorrows in their lives. Also, the family is a social unit which carries the social function of regulating each members, the economic function of production and consumption, the emotional function of supporting each other, even the intellectual function such that—along with the name of the family—certain culture-based family-centered traditions and values can be passed into late generations. It is of particular importance to recognize the social aspect of “family” in ancient China, probably more important compared to the marriage or biological aspects of the family. In fact, Chinese family can be conceptualized as a social unit in which family members’ roles and solidarity relations are defined by the underlying Confucian values, an economic unit in which the living members produce and consume in common, also a cultural unit where the family is responsible for performing certain anthropological rituals such as ancestor worship for the wellbeing of both living and deceased members. In another word, if some Chinese family member who is not willing to follow the family-centered thousand-year-inherited traditions and norms which all stem from the

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Confucian culture, then by the governing rules in the society this member might not be accepted as one part of the family. In Chapter 3, we will further discuss the economic, social, and educational functions of family in ancient China.

Chaxu Geju: Managing Concrete Social Circles in China Based on his observations on rural China in 1940s, sociologist Xiaotong Fei developed a theory of Chinese society that builds on the idea of Chaxu Geju (the difference mode of association). Here, “Cha” refers to horizontal social relations, in the sense of distances between individuals in concentric social networks, and the term “Xu” refers to the vertical dimension, in the sense of a rank order. “Geju” means pattern of social relations. Thus, the direct translation of the term Chaxu Geju means the patterns of social relations that vary in both social distances and orders. In Fei’s words, “families in the West are organizations with distinct boundaries. If a Western friend writes to you saying that he will ‘bring his family’ to visit you, you know very well who will be coming with him. In China, however, this sentence is very ambiguous. In England and America, a family will include the man, his wife, and his children who have not yet grown up. If he is bringing only his wife, he does not use the word family. In China, we often see the sentence ‘The whole family will come’ (hedi guanglin), but few people can tell what family members should be included in the word di (family). In Chinese, the word jia (family) is used in many ways. Jialide (the one at home) can mean one’s wife. Jiamen (kinsmen) may be directed at a big group of uncles and nephews. Zijia-ren (my own people) may include anyone whom you want to drag into your own circle, and you use it to indicate your intimacy with them. The scope of zijiaren can be expanded or contracted according to the specific time and place. It can be used in a very general way, even to mean that everyone under the sun is a jia (one family)” (Fei et al. 1992, p. 62). Fei proposes the term “group pattern” for describing Western society, meaning that Western societies emphasize ties to abstract collectives as

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compared to Chinese society, which emphasizes relations among concrete people (what Fei calls “social circles”). In a famous remark, Fei described social relations in China as the ripples that appear in a lake when pebbles are thrown into it; the ripples overlap and interfere with each other. Fei claimed that “social relationships in China possess a self-centered quality” (1992, p. 63), as each individual draws a concrete web of his or her own social relations, and nodes (individuals) are centers of circles that can expand or shrink. This claim indicates that, although there might be some overlap among individuals’ self-centered networks, “(n)o two people in the world can have entirely the same set of relatives…… (t)wo brothers certainly would have the same parents, but each brother would have his own wife and children” (1992, p. 64). Additionally, the concrete social circles surrounding self-centered nodes represent the order of intimacy that the focal individual perceives toward social connections surrounding him or her. The closer to the center, the higher extent of perceived intimacy or so-called “Ziji-Ren” (my own people). According to Fei, the notion of family in western social science cannot be directly applied to China, because in China the boundary of family is fuzzily defined and open-ended, adapting to the functional needs that emerge in specific social and economic context. Using Fei’s words, “(i)n Chinese society, the most important relationship—kinship—is similar to the concentric circles formed when a stone is thrown into a lake. Kinship is a social relationship formed through marriage and reproduction. The networks woven by marriage and reproduction can be extended to embrace countless numbers of people—in the past, present, and future. The same meaning is implied in our saying ‘Everyone has a cousin three thousand miles away,’ with three thousand miles indicating the vastness of kinship networks. Despite the vastness, though, each network is like a spider’s web in the sense that it centers on oneself ” (1992, pp. 62–63). In addition, Fei believed that the concept of private/public domain as well as the perception of “ziji-ren” (my own people) are all relative. In his own word, “(t)he scope of zijia-ren can be expanded or contracted according to the specific time and place” (1992, p. 65). Thus, standing

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on the behalf of his/her own family, it can be said that the neighborhood is less “intimate” compared to the kinship family. Thus, it can even be argued that “a person who sacrifices his lineage for the sake of his family is performing a public duty” (p. 66), also “(w)hen he sacrifices his country in struggling for the interests and rights of his own small group, he is still acting on behalf of the public, which is now defined as the small group itself ” (p. 66). On the other hand, selfishness can be achieved by moving outward across concrete social circles. Fei’s Chaxu Geju (1992) provides a fundamental explanation of rationales ales behind Chinese people’s social interactions especially those living in rural China. It also helps explain for average Chinese why the focus is often placed on his/her own families rather than the community or overall social matters.

Boundary of Chinese Family In general, the concept of “family” in China includes family members that go beyond the Western stereotype of family. In the Western context, a nuclear family refers to a family household founded by the marriage of a man and a woman, and enlarged by the birth of their children. In contrast, as a result of the dictates of familism in ancient China, a Chinese husband and wife often felt impelled to have at least one son and preferably more, and all sons together with their wives and grandchildren should if at all possible continue to live within a single household. In fact, the “ideal” sense of family or jia in China can be best described as “five generation under one roof ,” although only a small portion of households reach this size. That is to say, compared to the Western stereotype of family, the ideal “family” in China is larger in size and more complex in solidarity relations among its members. Also highlighted by the definition of “family” mentioned above, in Ancient China the inclusion of members into the family is largely defined by the Confucian values. Among all, the most prevailing notion of “family” comes from the norm of nine grades of relations (Chinese: 九族). In general, the nine grades of relations classifies members that can be legitimately included as members of a family system or even a family

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lineage. Two most prevailing interpretation of nine grades of relations were: (1) nine generations from great-great-grandfather down to greatgreat-grandchildren; and (2) four generations from the paternal line, three from the maternal line, and two from the wife’s. Historically, the notion of nine grades of relations had been widely used by government authorities for award, punishment, and annihilation. One motive behind the extension of family system is the unique relationship between family and individual. In the West, the family often serves the basic function of raising and preparing individual before he/she goes out into the world and becomes a full member of the society. As a result, family often experiences break-up when children reach adulthood, depart from the original family, and start to build their own nuclear families. In another word, the family system in the Western society exists to nurture junior family members. The situation in the traditional Chinese context is the exact opposite: the purpose of family members especially junior males is to nurture and continue the family, which is often aligned with shared family surname, history and antecedents. Or as Baker put, “there is an underlying assumption in Chinese thinking on the family that there is such a thing as a ‘Continuum of Descent’…Decedent is a unity, a rope which began somewhere back in the remote past, and which stretches on to the infinite future,” and “the individual alive is the personification of all his forebears and all his descendants yet unborn” (1979, p. 26). Hence, it is not a surprise to see Baker concluded that “individual was dominated by the family (in China)” and “the actions of individuals were geared to the requirements of the (Chinese) family” (1979, p. 27).

Solidarity Relations in Chinese Family Solidarity relations in the family system refer to the various relations between two family members. In ancient China, there are three family relations highlighted in Wu-Lun (Chinese: 五伦) or Five Human Relationships emphasized by Confucian values and institutionalized by the law and the state government. Wu-Lun includes: Ruler-minister,

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father–son, elder brother–younger brother, husband–wife, and friend– friend. For the interest of this book also regarding their relevance to family business and business family in China, we focus on four solidarity relations among family members, including (1) father–son; (2) husband–wife; (3) mother–son; and (4) brother–brother. Note that, although the mother–son relationship is not included in Wu-Lun, it is still of particular importance to Chinese families. This is because, mother often fulfills the function of educating children, and often serves as the emotional tie that binds all family members together. After the father dies, all the sons are supposed to respect the mother, and the mother is expected to guide the sons in important family matters. Hence, we include the discussion of mother–son as an important type of solidarity relationships in the Chinese family. Also note that, beside mother–son relationship, the other three types that we will further elaborate below can be viewed as “prototypes” of relationships that Chinese individuals might experience in the society. That means, the family system can be conceptualized as a pre-school which provides the basic social rules and norms of interacting with others such that junior family members can be better prepared before entering into the society.

Father–Son Given the dominance of patriarchy (father or oldest male as the head of the family), patrilineality (family membership derives from and be recorded through the husband’s and father’s lineage), and patrilocality (married couple resides with or near the husband’s parents) in China, it is not surprising that the father–son relation is of vital importance to the whole family. The father, in many cases also the head of a patriarchal family, often perceives his son as his continuation, and hence might place high priority on critical matters relevant to the long-term prosperity of the family, which includes mentoring, training, supporting, finding the son a wife, leaving some inheritance, and establishing moral standard for the son and other family members. In fact, for male family members in China, it is assumed that his biggest responsibility is to continue the family line along with his father and ancestors by giving birth and

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nurturing younger generation. This can be best explained by the Mencius “of the three unfilially acts the greatest is to lack posterity” (不孝有三无 后为大). Interestingly, the content of the relation between father and son is often expressed in two extremes. On one hand, if the son shows obedience to his father, then the father is assumed to respond with kindness, which is expected to strengthen the filial piety in the side of the son. This scenario can be best described as “a father should be kind and sons should be filial.” On the other hand, as the head of the family, the father is often obligated to establish the moral standard for the whole family, and to command punishment to certain family members when necessary. That is to say, the father is expected to be “stern and dignified” to his son especially when the son acts in a violation of moral codes or of the son’s obligation to the family, whereas at the same time the mother is often portrayed as being “gentle and compassionate.” In fact, the principal of filial piety in the father–son relation places more emphasis on the son’s duty of obedience rather than the father’s position of superiority. Also, the son’s obedience from a Confucian perspective is often regarded as unconditional, unless the father performs immoral actions then the son is obligated to dissuade the father.

Husband–Wife Different from the western context in which the husband–wife relation is often located in the center of the family system, in China the relation is by no means as important and probably not as strong as other solidarity relations such as the one between father and son. In fact, wife’s status in a Chinese family is often dependent upon her bonding with her son (s), especially when the son or one of the sons becomes the head of the family. In general, the wife is expected to take care of the household, raise the children, and promote the overall well-being of the whole family, although such activities are under the direction of the husband’s mother or the wife’s mother-in-law. When mother-in-law dies, the wife is expected to take her function and direct the future daughter-in-law.

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It is worth mentioning that the division of labor in the “ideal” family also follows the solidarity between husband and wife. Men are often responsible for production works such as planting and seeding in agriculture, while women are left for household works. The training of children is often differentiated by sex, such as boys are trained by husband and girls by wife. The oldest man of the oldest generation takes over the overall family management as well as the exchange between the family and outsiders. The strength of the bonding between husband and wife is also asymmetrical by nature. That means, from the wife’s view the relation has greater importance compared to the husband’s view, and the nature of the relation is often subject to the husband’s command. As far as the husband’s parents still live, the husband is assumed to place lower priority on the husband–wife relation compared to his relations with his parents. Nonetheless, in any matter relevant to the young generation, the bonding between husband and wife become quite strong, and the husband is expected to support his wife in such matters. Also note that, the Confucian norm tends to be very explicit in terms of the “Seven Grounds for Divorce” (Chinese: 七出之条), clarifying seven conditions that the husband can although not necessarily need to divorce the wife. These conditions include (1) not obedient to the in-law parents; (2) childless; (3) adultery; (4) jealousy; (5) (severe) disease; (6) gossip; and (7) theft. As a reflection of the prevailing patriarchy in ancient China, the husband can divorce if he finds or suspects that the wife is having an affair; while at the same time the wife is not supposed to show jealousy toward the husband’s relations with other wives or even concubines. An ideal wife, on the other hand, is expected to urge the husband getting another wife or concubine in face of a childless marriage. Nonetheless, the Confucian value also highlights three exceptions under which the husband should not divorce the wife despite the wife has met one or more conditions according to the “Seven Grounds for Divorce.” The three exceptions include (1) her parents passed away and she has nowhere to return; (2) she completed a full three-year mourning for a parent-in-law; and (3) her husband was poor when they married, and is rich now.

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Another fundamental difference between China and the West is that, the marriage is neither built upon nor strengthened by the romantic love between the husband and the wife. In the West, romantic love is considered as the funding component of a marital relationship especially in the very beginning. As a comparison, in China the marriage is the outcome of a negotiation between parents of both families, and the husband and wife are informed to get married although very likely both have never met each other before. After the wedding, the couple’s relation is mainly driven by the husband’s commanding and the wife’s respect toward the husband.

Mother–Son In general, mother is supposed to take a gentle, caring, and compassionate role, whereas the father figure more symbolizes dignity and sternness. As the Book of Rites (礼记) summarized “Here now is the affection of a father for his sons- he loves the worthy among them, and places on a lower level those who do not show ability; but that of a mother for them is such, that while she loves the worthy, she pities those who do not show ability: the mother deals with them on the ground of affection and not of showing them honor; the father, on the ground of showing them honor and not of affection” (Lang 1946, p. 29). In this regard, the father is often portrayed as a figure of authority in the family, while mother is expected to take a “soft” role in raising the child, taking care of the whole family, and developing affective bonding among family members. Hence, it is not surprising to see that, in an ideal Chinese family, the mother is not responsible for educating and disciplining children. Nevertheless, in some cases when the father passes away, the mother might take a more active role with more responsibilities. One famous example here is the mother of Mencius who changed the residence location three times to save her son from disturbing influences.

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Another example is the mother of General Fei Yue1 (Chinese: 岳飞), who according to historical record and legend tattooed four Chinese characters jin zhong bao guo (精忠报国, serve the country with the utmost loyalty) across Fei Yue’s back in order to encourage her son to join the army and defend the country against the Mongols. Interestingly, the tension between mother and son often comes from the frustration between mother-in-law and daughter-in-law. As mentioned above, daughter-in-law is often supervised by her motherin-law, and the daughter-in-law owes complete obedience and respect to her mother-in-law. At the same time, mother-in-law owes her daughterin-law nothing in return, merely bearing the responsibility of ensuring daughter-in-law in a reasonably good state such that daughter-in-law can still bear the duty of child birth.

Brother–Brother The solidarity relation between brothers is one of the most important bonding among family members, only next to that between father and son. In theory, the brother–brother relation should be highly cooperative, as brothers are obligated to mentally and materially support each other. Also, younger brother is expected to show obedience to elder brother, although the age-based obedience is considered less important compared to the brothers’ mutual support to one another. One critical scenario also highly relevant to family business and business family is when the father dies, the eldest brother is expected to take a head position although such an endeavor is often accompanied with the splitting of the family afterwards. Indeed, the whole family often experiences family splitting after the death of the father whereas all brothers claim their legal shares of the family’s property. The temporarily of “brother consortium” and the splitting of the family stem from the difficulty of mutual adjustment among brothers. Indeed, the role of 1 Fei

Yue was a Chinese military general in Southern Song Dynasty (AD 1103–1142). He was best known for his leading of victory in the wars in the twelfth century between Southern Song and the Jurchen-ruled Jin. In ancient China, Fei Yue was often seen as a patriot and a hero. Since his death Yue Fei has evolved into a paragon of loyalty in Chinese culture.

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eldest brother and the role of family head differ dramatically. Also, the father’s head position was developed and strengthened when all sons were relatively young, while the eldest brother does not have such a long term to strengthen the legitimacy of the head position. In addition, younger brother do not have time to adjust for the eldest brother’s new position as well as the power and authority aligned with the position. Hence, the institutionalized right of all brother claiming their shares and the tradition of (bounded) equal household division provide a peaceful mean in which the challenges in such scenario can be resolved. Nevertheless, although being temporary in existence, the format of “brother consortium” still has its value for three reasons. To begin, such a “brother consortium” creates a buffering period when important matters related to household division can be further discussed and negotiated among bothers. In addition, it establishes a ground where under-aged brothers can grow into adults. In final, it is also a useful means to impress outsiders that the family and within family members are still united.

References Baker, H. D. (1979). Chinese Family and Kinship (p. 49). New York: Columbia University Press. Eastman, L. E. (1989). Family, Fields, and Ancestors: Constancy and Change in China’s Social and Economic History, 1550–1949. OUP Catalogue. Engels, F. (1972). The Origin of the Family, Private Property, and the State. New York: Pathfinder. Fei, H. T., Fei, X., Hamilton, G. G., & Zheng, W. (1992). From the Soil: The Foundations of Chinese Society. Berkeley: University of California Press. Lang, O. (1946). Chinese Family and Society (pp. 134–154). New Haven: Yale University Press.

3 Family: Economical, Social, and Educational Functions

Economic Functions Self-sufficiency Despite of its long history, the economy in Ancient China had long been dominated by the nationwide focus on agriculture. Accordingly, the family system in ancient China can be termed as economically “selfsufficient” in both production and consumption. That means, for the basic needs of agricultural goods, the peasant family is able to produce by itself, and what has produced are largely consumed by family members after the land rent and tax takeaway. The cooperation between families is also limited, and largely focusing on the exchange of life and production necessity as well as neighbor cooperation in economic activities such as wheat gathering in the peak season. As Levy (1949) highlighted, the self-sufficient nature helps strengthen the stability of family structure in China over centuries, because “a relatively slight decrease in the degree of such self-sufficiency was likely to mean a disproportionately great increase in the number of contacts with outsiders both regards production and consumption” (Levy 1949, p. 210). This self-sufficiency also justifies the importance of having © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_3

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female family members in charge of supportive activities such as cooking, sewing, care of the children, and others. On the side of consumption, although what the average family produces is theoretically sufficient for the family consumption, there are important costs to note. Levy (1949) highlighted that landlord rent, tax payment, and exchange of life items as important expenses that might affect the economic self-sufficiency of the family.

Land Attachment Partially due to the agricultural nature of Chinese society, attachment to land has been emphasized by many scholars as a distinctive component to family in China (Baker 1979; Eastman 1989). The ownership of land assures that the family can operate as a production unit, also the land itself might be connected with other anthropological activities such as ancestor worship. Hence, unless threaten by external forces, it is relatively rare to see a Chinese family moving to another place of residence. In these days, the purchasing of land and real estate property has been a distinctive feature of Chinese businessperson even in foreign territory.

Petty Capitalism In the book “China’s Motor: A Thousand Years of Petty Capitalism” (1996), American historian Hill Gates argues that since Song Dynasty there exist two modes of production in Chinese society operated in a manner of complementarity. The first is the “Petty Capitalist Mode of Production” which was characterized by the marketing activities of millions of families or family lineages in which the labor of kin was used to produce goods for the market. The other type is the “Dominant Tributary Mode of Production” which involves the parallel existence of a village class and a sociopolitical structure which exploited the former by exacting a tribute. Some examples here include royal lands, royal minerals of certain strategic resources such as salt and iron. Calling the countless petty capitalists as “China’s motor,” Gates argues that it is the petty capitalism that contributes to the vitality of economic activities in China.

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The recognition of “petty capitalism” in ancient China reminds us that, besides being a self-sufficient unit attached to the land, Chinese families are also productive units which have played an active role in market exchanges. Nevertheless, due to the dominant power of the threatening and extractive state, petty capitalists by nature were inclined to keep their enterprises small and familial. Evading taxes and avoiding political action, these family enterprises thus “perpetuated the gulf between themselves and power” (p. 275). As we will further discuss in the section “Family as a Mode of the State” Chapter 4, petty family capitalists in China often intend to “maintain a distance” from the powerful state government.

Business Family in Ancient China As one essential part of petty capitalism, business families in ancient China were mostly small in size. But there were some exceptions in which some business or commercial families created and accumulated a huge amount of wealth, even documented as “rich as a state.” While a successful business family is surely impressive by any mean, the visibility of the wealth might put the family in a dangerous situation, as the wealth might bring in the envy and hostility from other families even from the federal government. One of the earliest records is the Records of the Historian: Moneymakers (史记: 货殖列传) by Szuma Chien (BC 145–ca. BC 91). In this masterpiece, Szuma recorded Li, Fan (范蠡, BC 636–BC 448) who was a successful prime minister of Kingdom of Yue before he resigned and chose to start a new career as a merchant. As noted by Szuma, “Mr. Fan Li was a good manager, a sound judge of men, able to take advantage of the times. Three times in nineteen years he accumulated a thousand pieces of gold, and twice divided these between distant relatives and those in want. He was, in fact, a rich philanthropist. Later, when he grew old and infirm, he turned over his affairs to his sons and grandsons, who carried on and developed his business until they had millions. Thus he was called Lord Chu of Tao and his name became a byword for a rich man” (Yang and Yang 1979, p. 414).

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Social Functions Ancestor Worship One important social function of family in ancient China—also largely distinctive from the West—is ancestor worship. The practice of ancestor worship can be traced to Shang Dynasty which was over one thousand years before the rise of Christianity. In general, ancestor after death was considered as powerful gods who can give or withhold the success in hunting, agriculture, warfare, and other activities, while natural disaster, defeat, sickness, and death were viewed as their penalties to decedents (Baker 1979). One fundamental difference between after-life spirits in China and gods in the West is that ancestor spirits were subject to common human needs such as eating, clothing, sheltering, money spending, and sexual appealing. Hence, the relation between the dead and the living is mutual dependent: the living depends on the dead for supernatural assistance while the dead depends on the living for the material supplies. Note that the ritual of ancestor worship is inherently connected with the “Continuum of Descent” mentioned in Chapter 2. That is, if the living understands that they have after-life, and their after-lives depend on the supply offered by the unborn, then it is reasonable to link the quality of their after-life with their current fertility. So the prevailing ideal of “hundred sons and thousand grandsons” can be understood as a reflection of the living’s concern on after-life. As a comparison, although religious worship can also be seen in the Western culture, the emphasis is commonly placed on the living, and social rituals are to a larger extent orientated to the future rather than to the past. Chinese historian, Prof. Zhaoguang Ge of Fudan University, Shanghai, argues that, the attention to ancestors is the definitive feature of family household in China, also marked as the very origin of Chinese culture. As Ge notes (2014, p. 86), “when traditional Chinese considered their ancestors, themselves, and their sons and grandsons, they would feel that their life stream flowed on without end. And when they thought that they were a part of this stream of life, that they had a family and were

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not alone, they would feel that the meaning of their lives was expanding so much that it filled the whole universe. Grave and tomb burials, ancestral shrines and memorial halls and sacrifices were the stately occasions and places that confirmed and strengthened the meaning of their lives. They brought the continuation of kinship lines and the transmission of culture together as one unit; only when family and lineage bloodlines and cultural traditions were so united could they form the foundation of an ethnic ‘identity’”. Note that ancestor worship in Chinese family can also be understood as a social activity that strengthens the “status quo” of power structure in the family system and accordingly enhances the cohesion among family members. For instance, the senior generation might be viewed as a threshold to ancestor spirits, hence their status can be further legitimized by the worship. Also, the worship might help strengthen the principle of filial piety by highlighting the monitoring of the dead upon the living.

Educational Functions Family Education Family is the first place that child receives his/her education in terms of his/her position in the society and in the family as well as the appropriate manners and behaviors he/she is supposed to use in various social settings. The content of family education covers the general knowledge of the values, norms, and habits of the family and of the society, as well as the behavioral disciplining such that children can conform to the prevailing social norms and values. In ancient China, family education can start as soon as the child reaches two-, three- or four-years old. At this age, the child might be told stories by mother or senior generation such as grandmother, and one of the most used sources is the Twenty-Four Examples of Filial Piety, which collects several examples of exceptional sacrifices made by children for their parents. Another important message in story-telling is that, children can learn in a very early stage that they are obligated to put family

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first no matter of the situation. Besides filial piety and the priority of the family, a child near the age of four starts to learn the proper manners in settings inside and outside of the family, such as respecting the status of grandparents, parents, elder (male) sibling, and nonfamily members such as government officials. Child was also taught greetings, apologies, and other social manners. It should be noted that, just like the West the family is the first place where Chinese child receives the training of discipline. Different from the contemporary western culture, physical punishment such as beating has been commonly used in ancient China especially those executed by fathers toward boys. When the boy grows up, he is expected to self-discipline his own behavior when interacting with others. As instructed by the Analects of Confucius ( 论语), “I daily examine myself on three points: whether, in transacting business for others, I may have been not faithful – whether, in intercourse with friends, I may have been not sincere – whether I may have not mastered and practiced the instructions of my teacher.”

Lineage/Clan School At the age of four to sixteen years old, the boys begin to go to school. It is relatively common that the family might employ a tutor if affordable before the school year. The boys often go to the lineage or clan school which is largely founded as a common property of families under the same surname and the same ancestor. Physical punishment is also commonly used in lineage school. As a comparison, girls might receive some education but largely from the mother or grandmother at home. In fact, the ancient Chinese has long discouraged the education for women, claiming that “of no talent is a woman’s virtue” (Chinese: 女子无才便 是德). In another word, going to lineage or clan can be considered as a boy’s privilege.

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References Baker, H. D. (1979). Chinese Family and Kinship (p. 49). New York: Columbia University Press. Eastman, L. E. (1989). Family, Fields, and Ancestors: Constancy and Change in China’s Social and Economic History, 1550–1949. OUP Catalogue. Gates, H. (1996). China’s Motor: A Thousand Years of Petty Capitalism. Ithaca: Cornell University Press. Ge, Z. (2014). An Intellectual History of China, Volume One: Knowledge, Thought, and Belief Before the Seventh Century CE . Leiden: Brill. Levy, M. J., Jr. (1949). The Family Revolution in Modern China. Cambridge: Harvard University Press. Yang, H. Y., & Yang, G. (1979). Selections from Records of the Historian by Szuma Chien. Beijing: Foreign Languages.

4 Characteristics of Chinese Family System

Introduction Shuming Liang (梁漱溟), a philosopher also a leader in the Rural Reconstruction Movement in the late Qing Dynasty and early Republican eras of China, once argued that the difference between Chinese and western cultures is that while China had stressed the importance of family, the West focused on the relationship of the individual to the community (Liu 2020). Liang further said that besides being a basic living unit and a production unit, the family also has an ontological significance in life in Chinese society, as all social relations have their prototypes in the family system. He even made this conclusion: “(t)he Chinese family system really determines the fate of China’s social economy and even the fate of China’s entire culture” (1987, p. 36). In this chapter, we carefully chose four shared features that differentiate family system in China from family system in western countries. These are (1) lineage; (2) patriarchy and patrimonialism; (3) bounded equal division of household; and (4) family as a model for the state. These four features are representatives of family structure, family’s governing principle, family inheritance, and the relation between the family and the state, respectively. © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_4

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Lineage (宗 宗族) The first one is the extended family or even family lineage as the most common form of family structure in China (Eastman 1989). This feature is in alignment with the focus on family composition, family size, and family dynamics in family sociology (Chambers 2012). One consequence of extended family system and the “Continuum of Descent” is that even after the household division and wealth inheritance, family members often continue to live relatively close to each other. Over time, this resulted in a family lineage or family clan in a small geographic area, featured by a large amount of individuals with a shared family surname, shared antecedents, shared family history, and shared ownership of some public (lineage) property (Freedman 1966). The organization of family lineage might be associated with family trust. Family trust is often built upon the income surplus of family property such as land, and all males in the same generation have equal rights of enjoying the surplus coming from the trust. When the family grows into a lineage, the trust also grows by including more family/lineage property. Lineage trust is often used for ancestor worship as well as other public services related to the well-beings of lineage members such as welldigging, road-making, irrigation, etc., in this regard, lineage trust can be conceptualized as a public fund comparable to counterpart in modern community in the West. The lineage is often under the leadership of the male head who is the most senior in generation, branch (firstborn son), and age.1 Another interesting feature of lineage leadership is the principle of primogeniture , meaning nominal authority is given to the firstborn son, his firstborn son, and descendants following this order, although in reality the richest male senior might gain more power and voice of saying. Nevertheless, when the lineage grows, it is possible that the lineage head might not be able to manage such a big community by himself. In addition, lineage members might raise the issue related to whether the head can treat all lineage members equally. Hence, family lineage 1 Being

senior in age does not necessarily mean being senior in generation. See Levy (1949)’s discussion on role differentiation in absolute age (p. 66) and in generation (p. 140).

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might use the Council of Elders as the leadership committee of the whole lineage. In general, the Council of Elders is composed of senior males who would make all important decisions concerning the affairs of the lineage. Sometimes, the lineage might also use a business manager who is comparable to the role of CEO managing all daily activities for the whole lineage. In this matter, the council of Elders would work as board of directors who direct and monitor the functions of the business managers. The overall function of lineage leadership is to reinforce the solidarity, integration, and expression in the family lineage. In general, the lineage head or the Council of Elders is in charge of the use of family trust for public services, ancestor worship, the initiating and revising of family genealogy, and resolve disputes among family members. In some cases family lineage can even partially replace the function of government in proposing and executing punishments upon certain family members. Among all, the most severe punishment is to take the name away from the family genealogy and to expulse the member from the lineage, which is comparable to criminal deportation in the legal system. Aligned with the equal household division which will be discussed further in this chapter, this creates a unique agency issue in ancient China. That is, although theoretically the family/lineage property might be owned by all subfamilies, the property is largely managed by the firstborn male of the most senior generation. Or as agency theory claims, the isolation between ownership and management might create agency issues such that the manager might opportunistically enjoy the rent coming from the use of common property without or with lower extent of paying shares to all family owners. Large family lineage might count up to thousands of living males (Harrell 1985). Powerful lineages commonly complied genealogies (家 谱) of their members as a means of maintaining their distinctive identities, boosting their prestige, and fulfilling their collective functions such as performing ancestor worship (祭祖), developing education systems (族学), and crafting family/lineage motto (家规/族规) which can be used to discipline deviant lineage members (Eastman 1989). One important aspect in lineage or extended family life is the collective ownership of some property (族产), often managed by family (lineage) trust, and incomes from which is often used for ancestral worship, youth education,

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and senior support (Szonyi 2002). This collective ownership partially helps prevent the de-integration of the lineage. Note that, although family lineage originates from a nuclear family, relationships and interactions among lineage members are more complex (Freedman 1966). In fact, it is well documented that tension also exists if not amplified among lineage members, mainly driven by conflicts of interests across nuclear families (interfamily conflict in family lineage), the management and usage of collective property such as family trust, and other issues related to lineage governance, labor differentiation, household division, and wealth inheritance (Freedman 1966). For family individual the lineage can be a blessing or a curse. In fact, sociologists have long recognized that social structures featured by closebonding may limit social change, in which most of social interactions are regulated by the social structure (Cook and Whitmeyer 1992). Also, the presence of family lineage might constrain the mobility of individual family members, and certain family members especially rich ones must bear the burden of taking care of other less successful, lazy even wastrel lineage members (Levy 1949). Also note that fictive kinship or pseudo-family relationship among individuals might be formed given certain circumstances. Here, fictive kinship can be defined as a form of kinship ties that are not based on either blood or marriage, in contrast to true kinship ties (Ibsen and Klobus 1972; Stone 2002). In China, strong fictive kinship can be formed vie close friendship ties, close residence, school friends, workmates, or other reciprocal social or economic relationship. Note that, according to sociological studies, fictive kinship is often conceptualized as a strong guanxi relationship in which mutual loyalty, long-term dedication, and reciprocal favors are assumed, with its most common form as brotherhood among males (Nye 2000). Although largely being symbolic, failing to fulfill the responsibilities aligned with fictive kinship is often perceived as an immoral endeavor. In general, there are three fundamental issues that differentiate fictive kinship from “real/true” kinship. Firstly, the legal protection toward fictive kinship in China is weak if not null. As a comparison, true kinship, and right and responsibility aligned with true kinship, are explicitly articulated in Confucian values and strictly protected by the federal

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government (Levy 1949). Second, although some forms of fictive kinship might be included in family clan in terms of physical residence and social interactions, such an inclusion might take a long time to develop. And very often these nonfamily members are excluded from lineage governance, and benefits stemming from the collective lineage property are seldom granted (Freedman 1966). Third, the division of family or lineage property seldom goes to fictive-kinship members (Levy 1949). All together these principles echo the assumed positive correlations between the proximity of social relationship and the priority assigned to the relationship. That is, the family is often placed at the very center of the circle of social relationships. So it is morally correct for a family member to place high priority to other family members, then the order of priority moves to lineage members with distant blood connections, and eventually to nonfamily or fictive-kinship members. Or as Mencius taught, “expending the respect of the aged in one’s family to that of other families” (老吾老,以及人之老).

Historical Development of Family Lineage in China It takes thousands of years for the China’s family lineage system to mature. The root of the system can be tracked back to the end of the Pleistocene era following social and technological developments such as agriculture and domestication which granted more power to men rather than women in the household. The family lineage as a common form of governance in China was established in Xia (approximately 2070–1600 BC) and Shang (approximately 1600–1046 BC) dynasties, although the system was initially adopted only by the royal families and then the noble class. In Song (960–1279 AD) and Ming (1368–1644 AD) dynasties, the family lineage system was endorsed and supported by the state governments, and started to become a regular form of family governance. In family lineage, there exist family genealogy (家谱), ancestral halls (宗祠), family/lineage motto (族规), and other institutions that help strengthen the vitality of the lineage system. Family genealogy (家谱) contains the full tracking history of the family (lineage) as well as names and stories of male ancestors. Family genealogy helps group linage

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members together as a collective sharing the same surname and the same line of ancestors. In this regard, family genealogy can be viewed as a mean to “formalize” the legitimate foundation of family lineage governance. The origin of family genealogy can be tracked back to the Shang dynasty (approximately 1600–1046 BC), although its full development emerged in the Tang (581–907 AD) dynasty. Most of existing copies of family genealogy can be tracked back as early as the Song (960–1279 AD) dynasty. Almost all family lineages would maintain an ancestral hall, shrine, or temple (宗祠) in which the tablets of ancestors’ names—which were thought to embody the ancestral spirits—are placed and the ceremony of ancestor worship is performed. Ancestral hall is often viewed as a symbol of the existence of a family lineage. The origin of ancestral hall can be tracked back to the Zhou dynasty (1050–771 BC), although the building of ancestor hall was formally legalized in the Song (960–1279 AD) and Ming (1368–1644 AD) dynasties. In the Qing dynasty (1644– 1912 AD), along with the prevalence of family lineages, ancestral halls can be seen in almost all peripheries of the Chinese society. The organizing of ancestral hall is comparable to the administration in feudal China. the leader of the ancestral hall is called Zongzi (宗子), which is comparable to the emperor. Zongzhang (宗长)—the head of lineage—is comparable to the prime minister. Zongzheng (宗正) and Zhongzhi (宗直) comparable to the Director of the Ministry of Rites (礼部尚书) and the Director of the Ministry of Justice (刑部尚书), respectively. The organizing of ancestral hall is an exceptional reflection of “Family as a Model for the State” (家国同构) in China, which we will further discuss later in this chapter. The first family (lineage) memo (族规) appeared in the Three Kingdoms era (184–280, AD) in which Chou Tian (田畴) deigned for his family. In Tang (581–907 AD) dynasty, family memo remained a household matter that each household used to educate junior family members. It was until the Song dynasty (960–1279 AD) that family (lineage) memo was officially legalized by the central government as a complement to state laws and government regulations. Family (lineage) memo serves three primary functions. Firstly, it builds the legitimate foundation of ancestor worship as a custom that all lineage members must

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follow. In addition, it develops a hierarchy of family lineage governance, which helps consolidate the privileges associated with generation, branch (firstborn son as legitimate successor), and age. Finally, it stabilizes the value systems associated with the Confucian culture such as loyalty (忠), proper rite (礼), and filial piety (孝).

The Qian Family: Family Memo In Jiangsu and Zhejiang, the Qian family is a very big and prestigious family. The family has had a genealogy since Wu Yue’s King, Qian Yue (852–932). Zou Shencheng, a consultant at Hangzhou Qianyu Research Association and a professor at Zhejiang University, has been studying this family for many years. He said that since the beginning of Qian Wang, the elites of the Qian family have continuously emerged, and in recent times they have been reached the heyday of the descendants. There was a tongue twister to describe the “talent spectrum” of the Qian family at this time—“One Nobel Prize, two diplomats, three scientists, four Masters of the nationalism, five Vice Chairmen of the National Committee of the Chinese People’s Political Consultative Conference, and eighteen Academician of the two major national academies.” According to an incomplete statistics source, currently there are more than 100 members of the contemporary Qian’s family in China and abroad, distributed in more than 50 countries. The prosperity of the Qian’s family is closely related to the “Qian’s Family Memo,” which is regarded as a family rule by the Qian family. Qian’s Family Memo is a collection of records of Qian, Liu’s everyday value and deeds, recorded by his descendants. It comprehensively regulates and teaches the ideological behavior of keeping the country in control from a family-perspective, and has made a comprehensive standardization and teaching for the Qian’s descendants.

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Qian’s Family Memo2 Self • Let one’s thoughts not offend Heaven and Earth. Let one’s words and deeds not shame the saints and sages. • Uphold Master Zeng’s self-examination thrice a day, honor Master Cheng’s four admonitions of behavior. • Behave with restraint. Be incorruptible in the face of wealth. • Be firm in decision-making. Be generous towards others. • Narrow is the path of those who charge ahead, broad is the view of those who reflect back. • Capable are those who manage complexity, staunch are those who withstand setbacks. • Heaven and Earth forgive those who correct their mistakes, spirits relent to those who dwell in their station. • Study the classics and commentaries to build a solid foundation, read the histories to form sound arguments. • Know how to compose and praises will flow, accumulate virtue and good fortune will follow.

Family • To create an ideal home, one must establish excellent rules. • Keep the house clean and neat inside and outside, observe strictly the proper familial relationships. • Be filial and cheerful toward father, mother, and uncles, be considerate and loving toward brethren and in-laws. • Though ancestors may be distant, perform their sacrifices sincerely, though children and grandchildren may be slow, they must study the classics. • Choose virtuous daughter-in-law without calculating their dowry, choose fine son-in-law without asking wealth or rank.

2The

Qian Family Instruction was originally translated by Cecilia L. Chien (2012).

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• If well-off, guide and support the clan, create academies and charitable estates, in famine, assist friends and relatives and donate foot and grain. • Through hard work and thrift the family will naturally prosper, maintain a tradition of honesty and sincerity and the family will endure.

Society • Be trustworthy toward friends, be kind to all in the community. • Have compassion toward widows and orphans, respect the old and cherish the young. • Lend a hand during disaster, solve problems, and mediate conflicts. • Construct bridges and roads to facilitate travel, build riverboats to ferry throngs. • Establish free schools for children, create community storehouses for grain. • Eliminate selfish views, promote the public good. • Do not scheme for gain, do not envy wealth. • Distance yourself from petty men, but do not regard them as enemies. • Associate with gentlemen, but do not bend for the sake of agreement with other people’s views.

Country • Uphold the law steadfastly as a mountain, maintain one’s conduct as pure as jade. • Care for the people as if they were one’s sons, eradicate wrongs as if they were one’s foes. • Control subordinates strictly, treat the populace charitably. • If officials care just one fraction, the people will benefit ten times that. • If the ruler endures just one fraction, the people will benefit ten thousand times that. • If only one will profit, do not contemplate it, if All Under Heaven will profit, definitely proceed.

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• If there is any benefit at all, then implement it, benefit will last for generations, promote it all the more. • The wisest lead by gathering the ideas of many, the stupid misrule by maintaining their views alone. • Intelligence and foresight are secured by humbleness, meritorious service to the land is secured by yielding. • Courage and power are secured by discretion, wealth of the realm is secured by modesty. • The ruler cultivates integrity first and foremost, the multitudes cultivate vigor as fundamental. • Limit expenditures to essentials and the country will prosper, employ the virtuous and capable and the country will be strong. • Promote education and talent and the country will flourish, maintain proper relations with neighbors and the country will be at peace.

Patriarchy and Patrimonialism (男 男权家长) Patriarchy refers to the prevalence of male dominance in the past, and its partial and implicit existence at present. Like some other societies, for family in ancient China only males are considered as legitimate descendants (Hamilton 1990). Staring from the birth, women received little of rejoicing in the family compared to males. It is even documented that there might be a biased selection of gender at birth such that only males were chosen, and women were abandoned or even sold out (Mungello 2008). In addition, family resources are often skewed toward sons in terms of life supplies, education, and allowance. At marriage, woman’s surname is often replaced by her husband’s family name, meaning that the woman lose her connection with the natural family (Guisso and Johannesen 1981). In fact, it was commonly perceived that “the effort to raise and train a girl only for all the investment to be handed over to her husband’s family when she married”. In some cases, the woman was literally considered as a family estate when a young or even baby girl was purchased by the family who raised her up and eventually married her to one of their own sons (Eastman 1989).

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In situation of having woman but no male children, a couple might be impelled to use “uxorilocal marriage” of their daughter(s) in which the groom abandoned his own family name, joined in the bride’s family, and embraced the bride’s family name (Huang and Wolf 1980; Li et al. 2003). In this form, the groom became an adopted son, and gained the legitimacy of assuming the family’s surname and inheriting the family’s wealth. After marriage, the husband–wife relationship is given less priority compared to parent–child relationship. Last but probably the most important comes to the fact that, in the traditional Chinese context only male family members have the right to inherit the family’s wealth, and woman’s value was primarily evaluated based upon her affiliation with male family members such as her father, her husband, and her sons (Wakefield 1998). In fact, one common practice in front of a barren marriage is to urge the husband finding a concubine (Ebrey 1986). The status of concubine was not as high as the “legitimate” wife, although her status might be improved if she can give birth to a son especially if the first wife was barren (Eastman 1989). Note that patriarchy is more than barely a historical legacy, and even nowadays a barren marriage might still drive the husband looking for a secret lover for the purpose of childbirth, which tends to become one major issue behind tensions in modern Chinese (business) families. One concept closely related to patriarchy in Chinese family is the patrimonialism of household/family/lineage head, which contributes to the prestigious status of elder male family members. Note that such an increasingly higher status with increasing age is in contrast with Western culture especially those epitomized by the Anglo-America, which tends to be an “overwhelmingly a youth culture” (Levy 1949, p. 63). According to Levy, “it is true that the West does honor to increasing age in one sense, and particularly great age, but by contrast with the Chinese pattern in these respects, it is largely a matter of sentimentality… in China extreme age lends to judgment a weight of validity that is lacking in the West” (1949, pp. 63–64). In general, it is the male elder often that in elder generation that leads the ancestor worship and complying of family genealogy. Also, the shared belief is that after the father dies, the eldest son holds responsibility of taking care of other sons even family members in late generation. Some scholars also claim that such age- and

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generation-based role differentiation has important implications to the economic allocation in the family system, as it is the youth that creates economic wealth while it is the elder that controls the distribution of economic wealth (Levy 1949). The patrimonial male-elder governance is also linked with Filial Piety (Chinese: 孝) which refers to a traditional virtue of respect for one’s parents, elders, and ancestors. Note that filial piety should not be understood solely based upon son–father relationship and in practice it involves all parent–child relationships, as well as relationships with stepparents, grandparents, and ancestors. One implication of Filial Piety is a child’s unconditional obedience to parents especially father or grandfather (Chan and Tan 2004), while some scholar claims that “remonstrance” embedded in filial piety implies that a child needs to discourage a parent from performing immoral activities especially those that might harm the collective interest of the family, and/or might hurt the “Continuum of Descent” of the family (Jordan 1998). Also filial piety involves the role of the parent to the child in which father is responsible for nurturing the children especially the son, engaging him in ancestor worship, finding him (a) spouse(s), and leaving him a heritage that can be tracked up to antecedents and down to decedents. Note that filial piety is also aligned with the concept of loyalty to the state. We will further discuss these topics in the section of “Family as a Model for the State.”

Comparative Studies of Patriarchy and Patrimonialism One of the most influential studies on patriarchy and patrimonialism comes from Max Weber (1968). For Weber, domination is the “probability that a command … will be obeyed by a given group of persons” (Adams and Sydie 2001, p. 181). Weber distinguishes three types of dominance-charismatic, legal-rational, and traditional ones (1958). Here, charismatic dominance refers to the situation that the power comes from extraordinary and personal gift of grace or charisma. Legal dominance, also known as rational-legal dominance, refers to the authority

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grounded in clearly defined laws. Here, the obedience of people is not based on the capacity of any leader but on the legitimacy and competence that laws bestow upon persons in authority. The traditional type of dominance denotes to the situation that the power and authority stem from established tradition or custom. For Weber (1968), patriarchy is the most common form of traditional authority. Here, patriarchy means not only the oppression and domination of women by men, also the domination of some men by others. For instance, the male head of a family lineage, tribe, or nation may be a ruler who is accepted by members and is thus able to exercise absolute and legitimate authority. Here, patriarchal authority implies that the position of authority is defined, strengthened, and protected by tradition and custom, whereas the person affected by authority tends to show obedience based upon their personal loyalty to the power holder. The extent and the coverage of the power is constrained by tradition, although they can also vary by arguing that some actions are consistent with the tradition. According to Weber, the custom of patriarchy in China is most comparable to those in Ancient Rome, in which the Romans defined three spheres of patriarchal jurisdiction as the head of the family: potestas, manus, and dominium. Patria Potestas secures the patriarch’s power over his children and his children’s children, which also creates the power foundation by which the patriarch is able to control the succession of the family. Dominium refers to the power over the family’s property including the land and slaves. Manus refers to the power over his wife and his son’s wives. These three spheres provide absolute authority to the patriarch, as he was able to completely embody the family and own everything, while his sons and wife owned nothing. He dispensed justice to all family members, and had the power to punish or even kill family members for their misdeeds if needed. Nevertheless, according to Gary Hamilton there are two unique features in China’s patrimonialism which differentiates it from that in Western Europe (Hamilton 1984, 1990). Firstly, when comparing China with Western Europe, “(w)estern patriarchy is ancient… Chinese patriarchy is fairly modern” (Hamilton 1990, p. 85). In fact, Hamilton even argued that the Chinese patriarchy was most established in relatively late

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stages such as Ming and Qing dynasties. In comparison, while admittedly in early Greece father had the right to kill their children, such an unlimited patriarchy power was reduced by the time of Solon, and eventually made as a crime by late in the Republican or early Imperial periods. The second difference is that, while “(w)estern patriarchy emphasizes the ultimate supremacy of persons, whereas Chinese patriarchy emphasizes the ultimate supremacy of roles” (Hamilton 1990, p. 92). Here, when comparing patria potestas in Rome and filial piety in China, it can be argued that patria potestas focuses on the absolute authority of the power holder, whereas filial piety emphasizes more on the obedience and duty roles of the follower. Also, in ancient China the father’s power was justified by whether his doings were consistent with role expectations defined by the tradition and custom, just as the emperor’s authority was justified by whether he/she fulfilled the roe in maintaining prosperity and harmony within the empire.

Household Division and Wealth Inheritance (诸 诸子均分) Household division (Chinese: Fenjia, 分家) refers to a common practice in family wealth inheritance in which all sons were entitled to an approximately equal share of the family estate. In some cases, as discussed in the section of patriarchy above, the eldest son received an additional share of inheritance so that he can care for the elder if any also take care of other sons even late-generation family members. Household division can be viewed as a common yet historically evolving practice in family wealth inheritance in ancient China. One notable masterpiece in studying China’s household division practice goes to David Wakefield’s “Fenjia: Household Division and inheritance in Qing and republican China” (1998). As Wakefileld noted, “(Western) scholars have long been uneasy with the assumption that Chinese family property was (approximately) divided equally among all brothers… such an inheritance regime was economically ‘irrational’ since it created, indeed guaranteed, property fragmentation, downward (social) mobility, and morcellated landownership” (1998, p. 1).

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Rationales Behind Household Division According to Wakefiled, there are internal and external reasons behind the practice of household division. External reasons are state taxation and external threat such as political uncertainty, warfare, and banditry. In some cases such as the Yuan Dynasty (Chinese term: 元朝), increasing taxes on families with multiple males might cause early family division. Nonetheless, in Song Dynasty (Chinese term: 宋朝) the State ought to delay division because it might result in the loss of tax revenue or duty-service, as family with less available males might fall into a lower category of tax burden or even the exempt category. External threats such as poverty, warfare, and banditry have also been highlighted, as the family (lineage) might intentionally divide, and individual family members migrate into multiple geographic areas in order to increase the odd that at least some family members can survive (Wakefield 1998). In some cases, wealthy family even family lineage might choose to divide such that individual family members or nuclear families might join in different political parties, countries, or warlords that are in the middle of warfare, such that the continuity of the family is further secured. Internal factors that drive household division include family tension especially those among brothers as well as conflicts across generations. It has also been documented, accurately or barely as a reflection of prevailing social misinterpretation, that tension between brothers’ wives was a primary cause of household division (Freedman 1966; Wolf 1972). According to Eastman (1989), “inter-wives conflict” barely strengthens (but not create) the rivalries among brothers. Put differently, “the jealousies and enmities among the brothers’ wives” were “exacerbating these fraternal tensions (among brothers)” (p. 18) which fundamentally stemmed from the pressure of household division. Wakefield (1998) further contributed to this line of literature by noting that household division might be driven by brothers’ fear of potential losses of their shares given challenges in the family system, such as “the wastrel son precipitated most instances of household division” (p. 37), “one family member was being favored” (p. 38), or the conflict between “equal-male (per stirpes) nature of the inheritance system” and unbalanced distribution of sizes across brothers’ nuclear families (p. 38).

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Wakefield (1998) also noted that the timing of household division might follow three strategies: dividing when the tensions flare, dividing early to avoid disputes, and keeping it together for as long as possible, each with its unique causes and substantial consequences. Zheng (2010) further argues that the (roughly) equal inheritance system not only distributes economic capital such as monetary wealth among male family members, also human capital such as education as well as social capitals such as important relational connections. According to his qualitative study of Chinese family business in Hong Kong, he finds that the (roughly) equal inheritance system itself isn’t the destructive force that weakens family cohesion, intra-family relations as well as the overall competitiveness of the whole family. Instead, Zheng argues that the inheritance system can help the family by generating additional dynamics which can help create additional capitals by each generation.

Principles of Household Division Also according to Wakefield (1998), there are four basic principles of household division and the rights of individuals (pp. 65–67). The first principle is equal division among multiple brothers belonging to the same generation. The second highlights that, if one brother dies, and if this brother had one son, then the brother’s son is entitled to the brother’s entire share. The third one ensures that, if one brother dies, and if this brother had multiple sons, then these sons would equally divide the brother’s share. The fourth principle, in alignment with concubine mentioned above, claims “all sons inherited equally regardless of which mother bore them, be she the first wife, a second wife, or a concubine” (p. 67). However, note that these four principles are barely ideal, nonregulative, and culturally accepted guideline, and certain “unorthodox” factors might come into play and pose challenges toward the implementation of the principles. Put differently, the “equality” of household division in reality might be quite “bounded.” These “unorthodox” factors might originate from step-family, illegitimate children, adopted children, family tension, among others. Some even document the (limited) inheritance rights of daughters, wives, second or more wives, concubines, or

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even widows. Also, family property might vary in magnitudes and types, and it is not rare for the brothers or the whole family to sell some properties such that wealth can be transformed into a calculable form, and then can be divided in a roughly equal manner. One interesting consequence of roughly equal division in wealth heritage is that the estates of the rich, which were often large enough to support extended family or even family lineage, were particularly vulnerable to the process of household division. This is mainly because children in wealthy family are more likely to survive into adulthood, and are more likely to marry at a younger age. Higher survival rate and lower death rate meant that more sons in wealthier families grew to maturity and had claims on shares in their families’ estates. One topic relevant to family business and business family in China is the continued support to parent by siblings after household division (Wakefield 1998). In general, the duty of taking care of the elder might affect the equality of household division. If equal division is assumed so does equal duty in supporting parent(s). In some cases, the duty might be a decisive factor, and brother(s) who dare the duty might be given a higher share (Wakefield 1998). Another relevant topic is the involvement of nonfamily members such as public witness or government officials, whose function often centered at ensuring the fairness and legitimacy of the process of household division, although in practice the fairness and legitimacy were often just being “assumed.”

Household Division and Family Business Succession Household division is a basic method of reproduction in Chinese families. However, the new families stemming from the division are not completely independent. In fact, just like the branches come from the same root, there is a natural connection between the different branches on the same tree, also between those branches and the root. In Chinese business family, while it is common for divided families to remain independent in terms of their business activities, it is also common for them to work with each other in everyday life. Also, in face of difficult

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moments, the divided families might merge again to form a temporary cooperation. In China, when the father is alive the family property is controlled by the father. When the father dies, there usually follows a household division. This system of roughly equal division among all sons helps reduce opportunistic tendencies such as laziness, as each son needs to be responsible for the part of property that they own. At the same time, household division also weakens the economy of scale as well as labor specialization within the family household. As a result, it is rather difficult for the family to create or accumulate substantial scale of wealth through which the family’s economic and social status could otherwise be improved. This same mechanism of roughly equal household division has also been used by many Chinese family businesses. Of course, many business families that have emerged in modern China cannot simply use such a mechanism, because the core property of the business is the special knowledge and skills used in the business, also the family’s and the business’ reputations. When situation like this happens, Chinese business families come up with a variety of different inheritance methods. Take “Dong Lai Shun” restaurant from Beijing as an example. It was founded and jointly owned by the three brothers of the Ding family in the late Qing Dynasty. In 1943, the three brothers decided to divide the business with equal shares. Nevertheless, the name of restaurant “Dong Lai Shun” was taken by the eldest brother, while the other two brothers were given the sauce divisions associated with the restaurant (“Tian Yi Shun” Sauce Store for the second eldest son, and “Yong Chang Shun” Sauce Store for the youngest son). Other real estate and deposits were divided equally among the three brothers. This approach follows the equality principle behind Chinese household division, yet the main body of the restaurant also the brand remain intact. Also, after the household division, “Dong Lai Shun” restaurant remained in close collaborations with the two source stores. All sauces used in the restaurant were exclusively supplied by the two sauce stores, and these sauces can only be found in the restaurant. In the business sense, the restaurant is still controlled by the Ding family in which the brothers partnered in key supplies rather than equity ownership.

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Another example is the Yue family’s business in drugstore, which was founded in the Ming Dynasty and continued to develop through the Qing Dynasty. The division of the drugstore was through the establishment of two large subbranches (“Wan Quan Tang” drugstore and “Tong Ren Tang” drugstores). Below we will further discuss the succession of “Tong Ren Tang” drugstore as a case of Chinese family business in modern history.

Division and Succession Behind “Tong Ren Tang” Drugstore Xianyang Yue inherited his ancestor’s drugstore business and founded “Tong Ren Tang” in 1669. He had four sons, and his third son Fengming Yue was particularly good in Chinese traditional medicine. When his father passed away in 1688, Fengming inherited the drugstore business. In 1702, Fengming opened a store at the south of Dashilan Road outside the front gate of Beijing, and Tong Ren Tang’s reputation has grown since. In 1742, Fengming’s second son Li Yue inherited his father’s business. At one time, due to poor management, Li owed high amount of debt and the business could not continue. Fortunately, the drugstore was able to receive orders from the government, so the business continued to survive. In 1750, after Li died, his wife and his eldest son Yizheng took the control of the business. Due to the lack of experience also huge amount of debt, the Yue family had to obtain a loan of five thousand silver coins from the government in order to save the reputation of “Tong Ren Tang.” In 1753, due to a fire accident the drugstore was burned out, and the owner Yizheng died in the accident. In 1753, the brand “Tong Ren Tang” was under the control of Shiji Zhang, who had been a friend of the Yue family for years. As the revenue flow of the business was not sustainable, Shiji and other shareholders started to sell equity ownership. In 1843, through equity trading, the Yue family came back to the business and once again became the primary owner. In the nineteenth century, one adopted son of in the Yue family— Pingquan Yue—became the primary manager of the business.

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Pingquan was adopted by the Yue family when he was 20 years old. As the primary manager of the drugstore, Pingquan sold medicines made by other pharmacies and drugstores. This approach helped generate a strong revenue flow which was then used to pay off the debt. After Pingquan’s death, his four sons did not split the ownership. Instead, they chose to use a method of “four-branch co-ownership” in which each son and the respective nuclear family can receive a fixed amount of money each month as the dividend payment of their equity ownership. In addition, each nuclear family must assign an accountant to the business, and all revenue incomes should be verified by the four accountants. Also, each son can use the brand name “Yue Family Drugstore” to open new branches, although the name “Tong Ren Tang” was not allowed outside of the existing drugstores. In 1966, the drugstore was transformed into a state-owned business. While arguably equal household division marks one distinctive feature of Chinese families, it also has its own weak spot. To begin, such an inheritance method might aggravate the conflicts among brothers, as each brother might place higher priority on their own interests or the interests of their own nuclear families, rather than the collective interest of the whole family. As a comparison, primogeniture—a method in which the firstborn legitimate son inherits his parent’s entire or main estate—is often used in the UK and other western countries. Compared to the household division approach used in China, primogeniture can prevent the weakening also the splitting of family ownership, at the same time it might help preserve the economy of scale also labor specialization within the family business. Also affected by the Confucian culture, Japan has a family inheritance system that is unique compared to the systems in China or in the West for two reasons. Firstly, in Japan only the residual right of the ownership is spitted, and the family ownership itself is kept intact. In another word, although individual family member is able to obtain dividend from the shared family ownership, the ownership itself belongs to the whole family, and it is not transferred to individual family members. In this regard, the family ownership can be conceptualized as an independent company itself. In addition, the CEO position is not reserved for the firstborn son. Instead, Japanese business family often favors the

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son even son-in-law or adopted son who is most capable in managing the business, also who is most reliable and being trusted by other family members. As a result of the two reasons mentioned above, Japan has the highest number of long-lived family businesses (at least 200 years old).

Family as a Model for the State (家 家国同构) Family as a model for the state can be defined as a political, social, and cultural practice that links the structure of the family to the structure of the state. Note that “family as model for the state” is not a unique phenomenon specific to China. For instance, in the book “Politics,” Aristotle claimed that “the government of a household is a monarchy, since every house is governed by a single ruler… husbands exercise a republican government over their wives and monarchical government over their children, and that they exhibit political office over slaves and royal office over the family in general.” According to Confucian, the foundation of “family as a model for the state” can be summarized as “child should show obedience to the parent, younger brother to the older, wife to husband, and subject to the emperor who is to be regarded as the father of the nation.” Here, the state is conceptualized as the ultimate family in which the emperor is the father of all. The obedience to the parents is viewed as the foundation of the obedience to the state or the emperor. In this regard, the state often highlighted the importance of filial piety as well as patriarchy and patrimonialism aligned with filial piety, and link filial piety to loyalty to the state and to the emperor (忠孝一体). In fact, almost all dynasties in China emphasized filial piety as one of the founding principles in governing the whole empire. Another important implication of “family as model for the state” is that the boundary of the family is clearly defined by the State. For instance, in alignment with the Confucian value the government classifies who can and should be included as family member in the family system. One common standard used by multiple dynasties over a long time in China is “Nine Generations,” including multiple generations in both husband’s and wife’s family lines. Such a standard is often used

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by government officials in family wealth inheritance, family tax, as well as rewarding and punishment by classifying relevant family members. Another implication here is that family members’ rights and responsibilities aligned with the various solidarity relations among family members are regulated and protected by the state. One common example is the (bounded) equal division of household wealth in family inheritance which we have already discussed above. In the Chinese context, the principle of “family as a model for the state” also implies that an individual’s presumed right and responsibility in the family system is comparable to his/her presumed right and responsibility to the State. And the way of ruling and leading the family (lineage) is often viewed as the legitimate way of ruling and leading the country, and vice versa. Hence, it is common to observe some practices embedded in household division and wealth inheritance being used in the succession of sovereigns for the whole country. In the end, “family as a model for the state” also implies that the family (lineage) is often being viewed as a basic political unit, and the stability of the family (lineage) is assumed to be a necessary (but insufficient) condition for the stability of the whole State. The rationale behind this practice might stem from the comparability between obedience to the parent and obedience to the emperor. Also, the elder might be more inclined to being compliance to the government authority, so obedience to the elder/parent might also ensure young’s compliance to the laws and rules enacted by the state. Lastly, family lineage can be viewed as a political institute that helps the federal government’s control on local matters. In fact, lineage leaders are often given high social status, and often being viewed as “unofficial” government agents that help federal government in resolving local especially family-related disputes, disseminating news, punishing deviant (family) members, and dealing with other local matters. Recall the complementarity between petty capitalism and tributary mode of production which we discussed in Chapter 3. When looking at the historical development of private sectors also family entrepreneurs in China, it can be argued that the interdependence between private and state-owned sectors is the central theme that comes across thousands of years in China and may even shed light on the future prospect of

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economic reform in China. China’s leaders strongly endorses and called for rapid development of mixed ownership, defined as “…cross holding by, and mutual fusion between, state-owned capital, collective capital, and non-public capital.”3 While it is beyond the scope of the book to thoroughly discuss the implications of this policy, it can be argued that in the near future we might observe a closer and better mutual dependence between business families and central/local state governments in China.

Interdependence Among Four Dimensions Note that the four dimensions are carefully chosen to reflect the basic structure of family (extended family and family lineage), rules and norms governing the family (patriarchy and patrimonialism), family wealth inheritance (household division), and the relationship between the family and the state (family as a model for the state). Such a four-dimension model is parsimonious given the limited number of dimensions included. It is also comprehensive because each dimension might have multiple implications, also because the four dimensions cover the most important aspects and research focuses in family sociology. Note that the four mentioned above should not be viewed as isolated dimensions. Instead, these four are interdependent. One implication of the interdependence is that, each dimension’s existence is built upon other dimensions. For instance, “family as a model for the state” helps develop the legal, political, and cultural foundations of patriarchy and patrimonialism at the country level, meanwhile family lineage offers the social body in which patriarchy and patrimonialism are being implemented, and household division ensures that the continuity of the presence of patriarchy and patrimonialism when the family lineage system grows and/or splits. In addition, multiple dimensions might interact with each other, and it is their interactive effect that comes to affect a specific social activity. For instance, when we discuss the succession of a business 3 http://www.china.org.cn/china/third_plenary_session/2014-01/16/content_31212602.htm,

accessible on July 1, 2020.

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family, the principle of (bounded equal) household division might be applied, although the implementation of such a principle is based upon the family’s structure and governance (family lineage), the power structure of male siblings and their sons in the lineage (patriarchy), and the supportive legal and social systems from the state. In the The Essence of Chinese Culture, Liang (1987) compared the positions of family system between Chinese and Western social lives. Liang argued that the family is located at the very center of social lives in China, as the family functions as a bridge connecting individuals with the groups and the whole society. As a comparison, the position of family system in the West is more peripheral, as individuals are inclined to pursue lives either out of the family system or through other means. Also note that it is commonly believed that there is no religion in contemporary China. Some scholars also argue that the Confucianism, which is at the core of value systems in China, often functions as a religion in guiding individuals’ behaviors. Neither argument is accurate. Generally speaking, Confucianism is an elite culture or tradition that conceptualizes the sayings of Confucius as guiding principles when individuals enter family and social lives. From this angle, Confucianism can be viewed as an influential integration of elite and folk cultures in China. In fact, any religious belief coming to China must be “localized” by either connecting to or reflected by some aspects in Confucianism. As the family is located in the center of Confucianism, more than often the concept of “family” is also at the center of attention for any religious belief in China. Indeed, the focus on family system or household marks one distinguishing feature in Chinese culture, and such a focus remains unchanged from the past to the present, probably even to the far-future.

References Adams, B. N., & Sydie, R. A. (2001). Sociological Theory. Thousand Oaks: Pine Forge. Chambers, D. (2012). A Sociology of Family Life. Cambridge: Polity. Chan, A. K. L., & Tan, S. H. (Eds.). (2004). Filial Piety in Chinese Thought and History. London: Psychology Press.

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Chien, C. L. (2012). Chinese-English bilingual edition of Qianshi jiaxun: Family instructions of King Qian Liu. Wu-Yue Qianshi [Wu-Yue Qian Clan History], 7 , 3–5. Cook, K. S., & Whitmeyer, J. M. (1992). Two approaches to social structure: Exchange theory and network analysis. Annual Review of Sociology, 18(1), 109–127. Eastman, L. E. (1989). Family, Fields, and Ancestors: Constancy and Change in China’s Social and Economic History, 1550–1949. OUP Catalogue. Ebrey, P. (1986). Concubines in Sung China. Journal of Family History, 11(1), 1–24. Freedman, M. (1966). Chinese Lineage and Society: Fukien and Kwangtung (No. 33). New York: Humanities Press and Athlone Press. Guisso, R. W., & Johannesen, S. (1981). Women in China: Current Directions in Historical Scholarship. San Francisco: Philo Press. Hamilton, G. G. (1984). Patriarchalism in Imperial China and Western Europe. Theory and Society, 13(3), 393–425. Hamilton, G. G. (1990). Patriarchy, patrimonialism, and filial piety: A comparison of China and Western Europe. British Journal of Sociology, 41, 77–104. Harrell, S. (1985). The rich get children: Segmentation, stratification, and population in three Checking lineage, 1550–1850. In S. B. Hanley & A. P. Wolf (Eds.), Family and Population in East Asian History. Stanford: Stanford University Press. Huang, C. S., & Wolf, A. (1980). Marriage and Adoption in China, 1845–1945 (p. 16). Stanford, CA: Stanford University Press. Ibsen, C. A., & Klobus, P. (1972). Fictive kin term use and social relationships: Alternative interpretations. Journal of Marriage and Family, 34 (4), 615–620. Jordan, D. K. (1998). Filial piety in Taiwanese popular thought. In W. H. Slote & G. A. De Vos (Eds.), Confucianism and the Family (pp. 267–283). Levy Jr, M. J. (1949). The Family Revolution in Modern China. Cambridge: Harvard University Press. Li, S., Feldman, M. W., & Li, N. (2003). Acceptance of two types of uxorilocal marriage in contemporary rural China: The case of Lueyang. Journal of Family History, 28(2), 314–333. Liang, S. (1987). The Essence of Chinese Culture. Hong Kong: Joint Publishing. Liu, S. (2020). Origin and Expansion of Chinese Sociology. Singapore: Springer. Mungello, D. E. (2008). Drowning Girls in China: Female Infanticide Since 1650. Lanham: Rowman & Littlefield.

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Nye, R. A. (2000). Kinship, male bonds, and masculinity in comparative perspective. The American Historical Review, 105 (5), 1656–1666. Stone, L. (Ed.). (2002). New Directions in Anthropological Kinship. Lanham: Rowman & Littlefield. Szonyi, M. (2002). Practicing Kinship: Lineage and Descent in Late Imperial China. Palo Alto: Stanford University Press. Wakefield, D. (1998). Fenjia: Household Division and Inheritance in Qing and Republican China. Honolulu: University of Hawaii Press. Weber, M. (1958). The three types of legitimate rule. Berkeley Publications in Society and Institutions, 4 (1), 1–11. Weber, M. (1968). Economy and Society, 2 vols. Berkeley and Los Angeles: University of California Press. Wolf, M. (1972). Women and the Family in Rural Taiwan. Stanford, CA: Stanford University Press. Zheng, V. (2010). Chinese Family Business and the Equal Inheritance System: Unravelling the Myth. New York: Routledge.

Part II Households and Family Lineages in Modern China (1850–1949)

5 Society and Family Lineages in Modern China (Qing Dynasty)

The family system in feudal China was initially developed in the Song Dynasty, and underwent little to no change once firmly established. Because of this, when exploring the roles played by and the shifts taking place in Chinese households and family systems, one should first gain an understanding of the family systems in post-Song Dynasty feudal China. The primary characteristics of family system as a social organization in feudal China was that the prevalence of family lineage or clan1 formed around the descendants of the male ancestry line.2 Ever since the Song Dynasty, up until the establishment of People’s Republic of China (PRC), this method of family organization was extremely commonplace throughout China, regardless of geographic location. This social structure of family lineage was rooted in the predominantly agricultural economy. Throughout China, one can find countless villages named after the surname of the predominant family. Of course, villages also had residents with other surnames, and some villages had two or three predominant surnames instead of just one. 1 Family 2 See

lineage and family clan are often interchangeably used in this book. Chapter 4, Volume 1 for detailed discussions of family lineage/clan.

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In these family lineages, two types of households existed, “large” and “small.” The first refers to multigenerational cohabitated households in which some public properties were shared among all families. To live in such a large multigenerational lineage was the ideal life goal for many Chinese people: a home with many children and grandchildren is full of life and vigor, similar to the many branches and leaves on a large and flourishing tree. However, sooner or later, large lineage may divide into multiple small households. Some of these households grow and develop, while others collapse—thus, this social structure of family lineage along with the economic structure built upon the shared public property might be difficult to maintain for extended periods of time. The second type of household structure was the small-scale “stem family”3 , 4 household, generally composed of a husband, wife, multiple children, and possibly one or two elders. Small stem families are often created after the division of a large multigenerational household. Through the ties formed by blood and marriage, smaller household units were formed surrounding big household units. And the governance of family lineage can be viewed in a hierarchical structure led by the head of the lineage, the head of household, and the head of the family. Each small household was coordinated by the head of the lineage and the respective head of the household; these individuals were also responsible for assisting with collection of taxes levied by the feudal government and maintaining law and order in the countryside. The time between the late eighteenth and early nineteenth centuries was a critical period for the development of Chinese family lineages and family enterprises. The structure of Chinese household and the associated relationships among family members that we see today5 were for the most part formed after the industrialization and modernization in China PRC. Prior to this time, the Chinese Empire itself was undergoing enormous changes. 3The main factor differentiating a “stem family” from a “nuclear family” is the tendency of one child to remain in the parents’ home after marriage, forming a three-generational household. 4 Arguably, a large family lineage is composed of countless small stem families. 5The family structure and intra-family relationships nowadays were initially formed after the establishment of PRC, although certain changes also take place after the 1978 “Open-up and Reform.”

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Indeed, although the Qing Dynasty was a central government established by a minority ethnic group, the Empire was reunified in the seventeenth century and impressive levels of economic development were reached. This is called the period of Emperor Kangxi and Emperor Qianlong, two familiar figures in Chinese history. Under these conditions, China’s traditional culture and ideology gradually began to recover. Of particular note is the return of traditional family lineage system and lineage rituals, which also began to develop in some new ways. The rulers of the Qing Dynasty humbly borrowed from the Ming Dynasty’s policies on the grassroots base of the society, especially the governing of family lineages. They permitted and encouraged families to build shrines for ancestor worship; through these activities, the dynasty was rewarded with a stable social base. The construction of shrines not only served the purpose of worshiping also strengthened the sense of shared identity and feelings of closeness between members of a family lineage. Additionally, age hierarchy within the family lineage was formed on the basis of worship activities: each family lineage developed a loosely formed yet clear-cut identity framework in accordance with the differences in family members’ seniority and status. Here, for the identity of a member of the family lineage to be acknowledged by the others, they must respect and care for the lineage elders. Material support for worship activities was provided by the family lineage’s collective assets. As described above, one of the economic functions of the family lineage was to use the lineage’s collective assets for ancestor worship, primary education, and other common goods and to act as an economic safeguard for weaker or less prosperous members of the lineage. Families in the Qing Dynasty era gradually abandoned the method of selecting a lineage leader based on blood relations and status. Instead, families tended to select lineage members who were prestigious, well-educated, or held positions as government officials. The legitimacy of these lineage leaders was no longer based on patriarchal positions, but instead on their political status, social status, or economic status. Once gender equality concepts from the West began to permeate Chinese society, as urbanization and industrialization picked up pace, women left the countryside in droves and entered industrial and

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commercial sectors. With their own source of income and financial security, the status of women in Chinese society improve continuously, as did people’s concept of gender equality. In a sense, the increasing acceptance of the concept of gender equality relied upon women family member’s rising economic achievement. Under the traditional patriarchal family, women did not have the right to receive an education—however, starting in the late Qing Dynasty, many schools had started to accept female students, followed by a flurry of women’s schools opening up all around China. The rise of the status of women in society directly reflected new changes taking place in marriage and household structure: at the end of the Qing Dynasty, huge amounts of Western social and political works were translated into Chinese, and at the same time, a steady trickle of individuals who had studied abroad returned to China. These forward-thinking elites began to promote love marriage over arranged marriage, and reject social hierarchy based on family status and the pursuit of wealth through marriage. They advocated for the freedom to choose their own spouse, refused marriages arranged by their parents, upheld monogamous marriages, and criticized the taking of concubines. All of this was a massive shock to the marriage ideals of traditional Chinese society, which were rooted in the patriarchal family lineage. In the social reform movements that took place following the Xinhai Revolution, new social ideas based on humanitarianism and scientific knowledge began to spread. People started to advocate gender equity, the right to independently own property between husband and wife, and physical exams prior to marriage,6 also to recognize everyone’s right to marry, divorce, and re-marry on their own accord. In urban areas in particular, those admiring western thinking fiercely criticized the patriarchal family lineage system and the related traditional rituals. And people’s views on marriage underwent dramatic changes: the system of arranged marriage orchestrated by the parents of the bride and groom—a predominant tradition under the family lineage system— was abandoned and the modern marriage system gradually took shape. 6 Physical

exams prior to marriage can help ensure the health of both parties and prevent the intentional arranged marriage of an ill individual to a healthy individual.

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However, in rural areas where feudal power and traditional thought were more firmly embedded in society, the traditional marriage system still predominated. And in many rural areas, the status of women also lagged behind urban society. It is worth mentioning that during this period, the traditional family lineage system and feudal seniority-based hierarchy were criticized on the basis of modern Western thought—but the necessity and rationality of the family lineage system in the context of Chinese history, as well as some positive influences were neglected entirely. These criticisms also underestimated the Chinese family lineage system’s tenacious vitality and ability to adapt to various political and social environments. Thus, once the unrest passed, the family lineage system remained prevalent in China and maintained a reasonable degree of vigor.

6 Transformation of Family Lineages in Modern China and the Rise of Family Enterprises

Introduction During the Ming and Qing Dynasties, the Chinese economy underwent extremely fast-paced development. In the mid-nineteenth century, which corresponded with the middle and late Qing Dynasty, the population of China had already surpassed 400 million and the per capita income and GDP were increasing at the same proportion. This was a period of intensive agricultural development during which agricultural output was on the rise; simultaneously, massive amounts of excess labor force in the countryside shifted toward manufacturing handicrafts and engaging in industry and commerce. This sudden influx of workers spurred development of the commodity economy: for example, processing of agricultural products and metals, manufacturing of textiles, paper, and ceramics, and various other manufacturing sectors underwent swift development. In the regions on the periphery of manufacturing hotspots, small cities and towns emerged in droves. According to estimates by Skinner (1977, pp. 205–209), at the start of the twentieth century, there were 63,000 local marketplaces scattered throughout China. In 1912, the Ministry of Agriculture and Commerce listed 794 primary and secondary chambers of commerce © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_6

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with in total 196,636 members.1 Therefore, it can be estimated that the merchant class is composed of about 1.5–2 million individuals. This is a number that far exceeds other elite groups such as military leaders (17,000), students (30,000), students returning from abroad (35,000), bureaucratic officials (50,000), and even the gentry class (200,000).2 In rural villages, households became the basic unit of handicraft manufacturing. The traditional economic division of a household in which men farm and women weave underwent a dramatic expansion which caused the core production activities of farming and weaving to be restructured based on varying returns. Since weaving could bring in a relatively higher income, some households started to transfer the task of weaving to men, whose production ability was stronger compared to women. On the other hand, women whose physical strength and endurance were relatively weaker began to take on farm work. Under circumstances where the difference in returns from agriculture and weaving were even more pronounced, all of the individuals of a household who were at their physical prime would devote themselves to weaving, while children and the elderly managed farm chores. In some cases, the entire family would become dedicated weavers, leaving farm work behind altogether. During this time, commercial development spurred an urgent need for financial services. As the handicraft industry and long-distance trade slowly grew, resolving the issues of credit and banking became extremely critical. At this time, the central and local government had not yet fully established a corresponding financial system, let alone a nationwide financial market. Therefore, financial institutions were first born out of private banks. At first, these private banks served to support local commerce and trade activities in prosperous regions. At the start of the nineteenth century, the fund-pooling function of these private banks began to take place, and credit services were expanded to provide capital to support industrialization in large cities. Initially, these private banks were operated by the founder and the members of their family lineage: 1 Chamber

members included individuals, social organizations, industry associations focused on particular sectors, and companies. 2 All numbers were estimated by Bergère (1989).

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not only did the capital come from public assets collectively owned by family members, but some important management positions and clerical staff were sourced from the members of the family lineage as well as their fellow villagers. In these rural belts that were outside of the range of government interference, private banks developed rapidly. Starting from the mid-nineteenth century, the Chinese Empire encountered a series of shocks from the outside world. China, once a self-sufficient closed society, was involuntarily dragged into the industrial revolution and the globalization process of capitalism. Due to the backwardness and slow responsiveness of the Empire, a series of defeats in foreign wars forced the doors of China to open to the outside world. Alongside the goods and machines brought in by overseas merchants came new concepts and thoughts, which began to penetrate various corners of traditional Chinese society. At the same time, the mounting pressure on Chinese society from internal conflicts began to generate instability and social unrest, the most widespread and influential of which was undoubtedly the Taiping Rebellion. The vast majority of southern China was dragged into this movement, which, objectively speaking, severely damaged and overturned the economic and social structures in China, even to the extent that the Qing Dynasty hovered on the brink of being overturned for a period of time. Under the dual attack from internal and external issues, the development of family lineages also took a significant hit. The shock came from two main sources. One source was the gradual erosion of the traditional agricultural society and production methods, especially in the coastal regions that were the earliest to open for foreign trade. There, the slow rise of new capitalist production methods began to take place. The progression of industrialization also brought the rise of a new form of organization: enterprises. Masses of human talent and social elites began to leave behind agricultural production and abandon their pursuit of civil service careers, choosing instead to enter the world of commerce. In particular, long-running commercial traditions and industries such as banking provided a significant portion of the employees needed for the first wave of Chinese enterprises. At this time, education of young people in family lineages had already diversified beyond farm tasks. Instead, the focus gravitated toward preparing young lineage members to be sent to

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all sorts of businesses for apprenticeships, giving them the foundation that they needed to enter into the business world. A second shock endured by the family lineage system came from the urbanization and industrialization brought by the new capitalist production methods. This new system made it so that talented individuals had to gather in specified commercial centers, leaving their rural hometowns behind for considerable periods of time. This posed an immense challenge to the Chinese people, who were strongly connected to their native lands and were resistant to leaving their family homes behind. The adventurous-spirited, forward-thinking individuals who decided to work and live in new commercial centers to pursue fortune and opportunity were faced with the reality of leaving behind their traditional family lineage lifestyle and the place they called home. In unfamiliar territory, the most trustworthy and helpful individuals tended to be one’s fellow family lineage members and fellows who came from the same region. These people gathered together and formed various social also commercial organizations such as townsmen associations and lineage associations. The rise of new capitalist production methods caused the role and identity of the traditional family lineage system to undergo rapid transformation, and it was this transformation that set the foundation for wholehearted participation in manufacturing. The changes undergone by the Rong family of Wuxi, Jiangsu Province during this historical progression serve as a model example.

The Rong Family of Wuxi Brothers Zongjing Rong (1873–1937) and Desheng Rong (1875–1952), who are well-known in modern China, belong to Chunyi Rong’s branch of the Rong family of Liangxi District, Wuxi. Rong is a very old surname that belongs to the Chinese Han nationality, and the Rong Family of Liangxi are one of the countless branches of Rongs around China. The Rong family’s ancestors can be traced back to the Ji family lineage of the Zhou Dynasty royal family. According to the “Rong Family Genealogy,” the Rong family are the descendants of the son of one of King Zhao Zhou’s concubines, named “Jun” during his

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life and posthumously given the honorary title of “Ping Gong” (“Gong”3 is a respectful designation for an elder or master). The ancestors of the Rong family can be traced back to the end of the Spring and Autumn Period. Among these ancestors are Qi Rong (also referred to as Ziqi), who was one of the 72 sages of Confucius. Starting from Ziqi Rong, the Rong family lineage began to establish itself nationwide. The roots of the modern-day descendants of the Rong Family living in Liangxi, Wuxi can be traced back to Yin Rong (also referred to as Zhongsi) who was a scholar during the reign of Emperor Zhenzong Song (998–1022 AD). After years of civil service, upon his promotion to deputy ambassador of the Ministry of Household Affairs, he moved from Shandong to Huguang (modern-day Hubei and Hunan Provinces). The Rong descendants in Liangxi claim that Yin Rong is the first generation of their family lineage in the Huguang region, and he is also the first generation of the modern Rong family in Liangxi, and therefore is the top member of their family tree. Brothers Zongjing Rong and Desheng Rong form the 30th generation of the family tree of the Rongs of Liangxi. The first members of the family to arrive in Liangxi were Qing Rong (also referred to as Yiquan Rong; he also had a third name, a type of name reserved for individuals who were highly respected in society, called Shuilian Gong. “Gong” is a respectful designation for an elder or master.), who was a member of the fourth generation and lived during the reign of Emperor Hongwu of the Ming Dynasty (1368–1399). Yiquan Rong rejected the opportunity to serve as the editorial director of the imperial archives, choosing instead to join a group of renowned literati on a sightseeing tour around China. After this period of enjoyment, he settled in the north of Liangxi District of Wuxi, becoming the first generation of the Liangxi Rong family. There, he lived in seclusion, still refusing to take a job in the bureaucracy. Up until the time of Xitai Rong (1849– 1896), father of brothers Zongjing Rong and Desheng Rong and the 29th generation of the Rong family, the Rongs were a family of farmers and merchants who lived a well-off life of farming and doing business in Rong Lane. 3The family name Rong originated from Jun’s feudal territory Rong, which was located in the area that is now the city of Zhengzhou in Henan Province.

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Following the opium war, modern industrial production in China provided young people with a new career option aside from farming and preparing for the imperial examination. In the year 1860, when Xitai Rong was 11 years old, he left Rong Lane and went Shanghai to serve as an apprentice in an iron smelting workshop. One month into Xitai’s apprenticeship, Wuxi was captured by the Taiping Army, and soldiers marched into Rong Lane. Countless members of the Rong family lineage fell victim to this peasant uprising gone astray and were killed in the war and carnage that followed (see Fig. 6.1). Xitai Rong was fortunate enough to miss this catastrophe, but he encountered an even larger attack: in 1863, upon the completion of his apprenticeship, the Taiping Army retreated from Wuxi. His father, Xichou Rong, was among the five Rong family members lost in the bloody uprising. Xitai had no choice but to shoulder the burden of making a living and caring for his household alone. Crushed by funeral debts and the heavy responsibility of reviving the family business, he was forced to leave behind his homeland yet again and make a living to return the debts. He drifted from place to place for over a decade, enduring various hardships, until finally in the year 1884 he encountered an opportunity. He headed to Guangdong to join a fellow member of the Rong family, Junye Rong, who was working as an advisor in two government agency offices. Junye recommended Xitai to the head of the Tax Bureau, Zhongfu Zhu. Xitai was a hardworking young man, and was eventually promoted to the position of ledger for Mr. Zhu. From this process, the incredibly important role that traditional family lineage relationships played in Xitai’s career development is clear. As for why Junye would offer such an opportunity to a younger-generation lineage member with virtually no social status, Xitai’s hardworking disposition was naturally a critical factor. Technically, the earliest form of enterprise to appear in China was state-owned, not privately owned. The rulers of the Qing Dynasty and some open-minded bureaucrats, after experiencing setbacks in foreign wars and feeling the shock of modern science and technology from the outside world, pragmatically accepted the ideas of “controlling the outsiders by learning their technology” and “increasing one’s own strength through learning the technology of the outsiders.” Under the

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Fig. 6.1 The basic genealogy of the Rong family

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acquiescence of the imperial court, the bureaucrats used the administrative resources in their respective jurisdictions to organize China’s first modern enterprises. The most famous (also among the most successful) of these were the huge amounts of “state-owned bureaucrat-operated enterprises” set up by Hongzhang Li of Zhili (modern-day city of Tianjin and Hebei Province) and Zhidong Zhang of Huguang (modern-day Hunan and Hubei Provinces). Most of these early enterprises focused on heavy industry such as munitions, shipbuilding, and steelworks. In regards to foreign technology, the tactic of “bring it in and use it” was a reflection of the desperation of the bureaucrats to quickly make use of advanced Western technologies and weapons and is referred to by historians as the “Westernization Movement.” However, it was actually not the large-scale and vigorous “Westernization Movement” that caused these state-owned bureaucrat-operated enterprises to flourish. The success of these state-owned enterprises, which acted as “guinea pigs” for reform, was closely tied to the political fate of the local bureaucrats who supported them. The development of these enterprises relied entirely on the support of the administrative resources available to government officials. And as soon as these open-minded bureaucrats compromised with traditional bureaucrats during political battles or lost political power and influence entirely, these state-owned modern enterprises became political targets or were sacrificed altogether. Additionally, the heavy-industry enterprises that were established as a result of the “Westernization Movement” were long-term slow-payoff projects with large investment. The imperial court was not enthusiastic about using state finances to invest in and support these enterprises, and the financial strength of local governments was weak in comparison to the central government. Therefore, under the combined pressures generated by politics and finances, local bureaucrats began to recruit talented staff members, subordinates, friends, and relatives. These individuals played an important role, and private control and operation began to take place. However, as these enterprises were still under the supervision of bureaucrats, the concept of hybrid “government-supervised, privatelyoperated” enterprises emerged. The private heads of these enterprises were given a certain extent of operational autonomy and control, but the

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bureaucracy still had the right to own also to intervene: over time, this caused businessmen to lose interest in this type of enterprises to a large extent. As the control imposed by the bureaucracy gradually loosened, and commercial and industrial activities became increasingly prolific, an increasing number of entrepreneurially minded individuals took it upon themselves to create their own enterprises. They brought the members of their family lineages into these new firms, and the first generation of Chinese family enterprises was born.

References Bergère, M. C. (1989). Golden Age of the Chinese Bourgeoisie, 1911–1937 . Cambridge: Cambridge University Press. Skinner, G. W. (1977). Regional Urbanization in Nineteenth-Century China. In G. W. Skinner (Ed.), The City in Late Imperial China (p. 214). Stanford: Stanford University Press.

7 Two Cycles of Development of Family Enterprises in Modern China

First Cycle At the start of the twentieth century, China’s process of “opening up” to the outside was well underway, and China was becoming closely linked to the outside world. China, along with the rest of the world, was pulled forward by the mighty force of the global economy and the turbulent transformations taking place worldwide. The Xinhai Revolution finally put an end to the feudal reign in China, and also led to the disintegration of government-run enterprises leftover from the industrial revolution of the state-led “Westernization Movement.” The revolution did not bring about a particularly stable or strong regime, and China was quickly torn apart into small divisions controlled by powerful local warlords. Lacking the unified control of a centralized government, the development of modern Chinese family enterprises and capitalism entered a period of spontaneous and prolific growth. During this time, beneficial influences from both inside and outside of China further spurred the rapid development of modern Chinese family enterprises. The most significant external influence was the outbreak of the First World War, as well as the pattern of change that swept through the postwar world. Of the internal influences, the most notable was the active participation of © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_7

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the uniquely Chinese family lineage relationships in enterprises, which provided numerous favorable conditions for start-ups. At the start of the twentieth century, almost all of the Western powers that had economic interests in China were dragged into the First World War. The war generated a massive need for resources, causing the quantity of manufactured goods exported by Western powers to China to steeply decline. This generated a “vacuum” of supply in the Chinese market. During this time, some Chinese businessmen sensed a prime opportunity and began to actively fill in the “gaps” in the market, stimulating the development of national industry and modern family enterprises. As the need for raw materials and food increased sharply in the postwar world, global markets were flooded with Chinese-exported goods. Additionally, since the war drove up the price of precious metals around the world, the purchasing power of China’s silver-based currency system increased continuously. In terms of capital flow, in the early stages of the war, large foreign banks transferred their capital back to their home countries, and the enterprises and companies that these banks sponsored in China gradually reduced their business activities or ceased to operate altogether. Upon the sudden retreat of foreign capital, the business class in China that was suppressed under the unequal treaties signed between China and the Western powers now had a chance to expand their business activities. On one hand, the development of private enterprises allowed the economy to transition from traditional handicraft manufacturing toward modern industry and services. For example, droves of Chinese workers entered the flour and textile industries and opened banks to resolve financing issues. On the other hand, Chinese workers were faced with incomplete financing and credit systems and a relative lack of qualified professional managers; here, family lineages and “fictive-kinship family1 ” (referring to other close but not directly related relationships such as godfathers, “sworn brothers,” etc.) played a critical role in bringing in financial capital and human capital. The industrialization movement that China’s capitalism—which primarily existed in the form of family enterprises—underwent during 1 See

Chapter 4 for detailed discussions.

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this period can be viewed as the “second” industrialization movement of modern China. The leadership role held by family enterprises was the primary factor that differentiated the second industrialization movement from the first, which accompanied the “Westernization Movement” at the end of the nineteenth century. The Westernization Movement was an industrialization process led by the government and upper-level bureaucrats, and the state played a vital role. The first industrialization movement was primarily led by local bureaucratic powers, and a small number of practical bureaucrats and experienced and talented industrialists and businessmen played significant parts as well, but their roles were limited to operation. The Westernization Movement also differed in that it focused on heavy industry sectors, especially those related to the military, and funding was provided almost entirely by the central and regional governments. Therefore, although the Westernization Movement may appear to have been quite vigorous, in reality it lacked a market foundation, participation of entrepreneurs, and consumer demand for the goods produced. After the Qing Dynasty government collapsed and disintegrated, stateowned enterprises broke down as well, and were followed by the rise of the second industrialization movement. This movement, unlike its predecessor, was led by family enterprises, was firmly based on consumer needs in the marketplace, and was profit-oriented, resulting in more vigorous and successful development. Light industries such as flour and textile manufacturing received the most bountiful profits, making them the most favored by family enterprises. In the wealthy regions along the middle and lower stretches of the Yangtze River, massive numbers of small and mid-sized enterprises were born. Among these Chinese workers and family enterprises were some wellknown individuals. For example, Jian Zhang, the last top-ranking scorer on the Imperial Examination before the collapse of Qing Dynasty, founded Dasheng (otherwise known as Dah Sun) Cotton Mill in his hometown, Nantong. At first, Dasheng Cotton Mill was a governmentcommercial joint venture established by the governor of the Liangjiang region (present-day Shanghai and the provinces of Jiangsu, Jiangxi, and Anhui), Kunyi Liu, in the name of the local government. The acquisition of equal commercial shares by Jian Zhang transformed this

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enterprise into a “gentry-led, commercially-run” company. In other words, the ownership rights jointly belonged to government officials and businessmen, whereas the operating rights belonged to the businessmen. When the enterprise was first established, the majority shareholder was a member of the bureaucracy who had a share of over 50%. On the other hand, the share held by the manager of the enterprise was worth less than 1%. At the very beginning, as the agent and representative of the bureaucrat shareholders, Jian Zhang exercised management and control rights over the enterprise. However, during a fairly long period of turbulence, the state became unable to monitor the activities of the industry’s managers. At the same time, Jian Zhang used various methods such as partitioning shares and initiating regression of voting rights to make the overall voting power of small and moderate stockholders far greater than major stockholders. At the same time, Jian Zhang was recruiting his own family lineage members into the management of the enterprise: he used his family lineage and fictive-kinship fellows to achieve long-term stable control over the enterprise even without ownership rights. Another similar case is the Hengfeng Spinning Mill, a company that was also initially established as a state-owned bureaucrat-operated enterprise in the late Qing Dynasty. While serving as a local governor in Shanghai, the founder Jigui Nie used his political power to acquire control over the enterprise. He used various channels to purchase the then-struggling factory, the name of which he changed to Hengfeng Spinning Mill. His wife and sons then established a partner company, forming a major enterprise with over one million RMB in capital. However, later on the enterprise endured a heavy beating due to conflicts between Jigui’s sons. Textile industries established by the Chinese workforce underwent a period of rapid development, causing China’s sales of and domestic market for cotton products and cotton yarn to gradually expand. Chinese-manufactured cotton fabric and cotton yarn replaced imported cotton goods from abroad. According to the estimates of historian Weikai Fei, the local textile industries set up by China’s private enterprises were not crushed by the competition of foreign-imported cotton yarn and cotton cloth. In fact, Chinese-manufactured cotton products were on fairly equal footing with Western counterparts. In addition to the textile

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industry, massive amounts of Chinese workers were also concentrated in the flour processing industry, and countless family enterprises were established in this sector. Maoxin Flour Mill and Fuxin Flour Mill operated by brothers Desheng Rong and Zongjing Rong, are classic examples. In the next section, we will engage in deeper discussion using their family enterprise as a classic case study. Prior to 1914, all of China had a mere dozen or so flour mills, almost all of which were foreign-owned. All of the flour sold in large cities was imported from abroad. Starting in 1914, however, the domestic flour industry began to take off: massive amounts of family enterprises began building flour mills, not just to meet the needs of the Chinese market, but also to export around the world. Countless successful family enterprises were established in other light industry sectors as well, such as Shanghai Hengyu Company, an oil extraction firm established and run by Jingxi Li and his family lineage; Nanyang Brothers Tobacco Company, founded by brothers Zhaonan and Yujie Jian; and Chinese National Sugar Company, founded by Yushan Ma and his family lineage. As the end of the 1920s approached, modern Chinese family enterprises had already experienced a relatively thorough and stable period of growth. During this period, family enterprises existed in a wide range of sizes and worked in an increasingly broad variety of industrial sectors. Even more impressive was the fact that the accomplishments made by Chinese family enterprises during this stage were achieved in spite of various unfavorable factors such as the absence of a sound legal system, a complete financial system, and a stable political environment. Nevertheless, during this period, Chinese family enterprises also began to encounter some new issues and challenges. To begin, following World War I, the reconstruction of war-torn participant states caused the price of goods to incline, leading to inflation in various economies. At the same time, resumption of trading financial securities such as stocks spurred a speculation boom. One by one, countries tightened credit, causing the scale of industry and manufacturing to shrink. Many enterprises went bankrupt, and soldiers returning from the war came home to unemployment.

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Domestically, when this crisis made its way to China, the export business of family enterprises was hit hard. The pressure on export trade forced the banks—which provided funding to family enterprises—to shrink their money supply. Concerned about damages to their own interests, banks aimed to get back loaned money as soon as possible, forcing businessmen to sell off their products at a lower price, further increasing pressure on the market. At the same time, during this several-year period, Chinese agricultural production encountered a severe natural disaster that raised raw material costs. Under the pressure of these two coexisting stressors, from 1923 to 1924, private companies in general and family enterprises in particular that had been developing smoothly ever since their establishment suddenly faced a crisis. Massive amounts of factories either closed down or had no choice but to be mortgaged to foreign investors. The heads of some enterprises lost confidence in their ability to operate their company, and willingly offered up their enterprise to be taken over by foreign businesses. The period of rapid growth in Chinese enterprises was disrupted by a “cleansing” of sorts, and by survival of the fittest, the first cycle of development was completed.

Second Cycle From 1926 to 1928, the Northern Expedition formally reunified China. At this point, the Chinese Nationalist Party or CNP (also commonly referred to as the “Kuomintang”) established a central government that theoretically represented the interests of China’s industrial bourgeoisie and capitalists. Many historians who studied this period of history also believed that the Chinese urban bourgeoisie and rural landlord class were beneficiaries and supporters of the Nanjing regime established by Jieshi Jiang (often referred to by historians as Chiang Kai-shek). However, when looking back at the economic policies of the CNP and the party’s attitude toward industry and commerce, surprisingly the Nanjing government was not creating policies that supported the private enterprise and industrial and commercial activities. In fact, they aimed to establish a state in which economic activities were guided by the government.

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The first to experience the shock were the guild organizations and other autonomous institutions established by the business class. The Silk Guild, Sericulture Guild, Rice Guild, and various other industry associations were required by the government to realign themselves. Following that, under the guise of being “banned” by the CNP, countless chambers of commerce were transformed into government agencies that had to accept the leadership of the local administration. This structural reorganization caused businessmen and capitalists to lose the “bargaining power” needed to engage in discussion with the government, putting them at the mercy of government officials. Under the pressure of the endlessly growing CNP government, the banking industry also gave into the government in order to obtain corresponding political and economic benefits. By enthusiastically lending money to Jieshi Jiang (Chiang Kai-shek)’s regime, the fate of the banking industry was tied to the so-called leader of the country. Corresponding with this, many bankers became high-ranking officials in government departments, and used their political power for their own profit. Businessmen lost their enterprising spirit and transformed into bureaucratic officials. In terms of fiscal policy, after the establishment of a central government, a unified market was established for the entire country and the “lijin” tax, a form of taxation directed at commercial activities, was removed. Modern family enterprises and other industrial and commercial ventures took advantage of this opportunity: shipping costs were reduced, making the broader national market available to many companies. However, at the same time, the Nanjing government introduced new taxes, which provided unforeseen barriers to the development of family enterprises. In 1928, for example, the tobacco and flour tax were introduced; in 1931 came the cotton yarn, matches, and alcohol tax; 1933 saw the introduction of the mining tax. These and various other new taxes directly increased the operating cost of domestic industries and modern family enterprises. The CNP government also began to use paper currency, and due to the issuing of increasing amounts of paper money to ease financial tensions, the danger of long-term inflation loomed (Bergère 1989).

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Therefore, when the Great Depression reached China, the central government was unwilling to offer any support to domestic industries. On the other hand, high-ranking government officials as well as businessmen with close ties to the government—often referred to as “bureaucratic capitalists”—used the privileges offered by their position to endlessly expand their business interests and take over other enterprises. One form of market invasion by bureaucratic capitalists was private investment in various enterprises. For example, Ziwen Song (Soong Tse-ven) once coveted the Rong Brothers’ Shenxin Yarn Factory. Another form of market invasion was the acquisition of private enterprises by the government. They selectively provided subsidies, established monopolies, and destroyed the ability of private enterprises to compete in the market. Upon the full invasion by Japanese armies in 1937, the private especially family enterprises in China had been more or less forced to bow to the power of the government. Masses of large-scale enterprises were under the control of high-ranking bureaucrats and their allies, and many of these enterprises were externally controlled to the point where they could no longer be categorized as privately owned family enterprises. Instead, they were tagged as “bureaucratic capital.” Throughout the invasion by the Japanese army, all the way up until the transformation of the country into a new socialist China in 1956, the government exerted an immense amount of pressure on China’s family enterprises, severely restricting their autonomy. As the central government endlessly grew in strength, China’s modern family enterprises were forced into a situation in which the people were continuously submitting to the ever-advancing power of the government, barely staying afloat throughout the Japanese invasion and the civil war. Therefore, the second cycle of development of modern Chinese family enterprises was a cycle of being crushed and oppressed: starting from the conclusion of the first cycle, the second cycle was never really able to fully take form. During this cycle, family enterprises on one hand had already accumulated significant amounts of material capital and operating experience. But on the other hand, they had to expend considerable amounts of energy and money to manage their relationships with the government. And in some cases, they were even negatively impacted by the economic policies put out by the government. During this second cycle, China’s modern family

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enterprises developed in an unfavorable and malformed environment. All the way up until 1956, the year in which their historic mission finally came to an end,2 family enterprises did not enjoy any ideal opportunities for growth and expansion.

The Cao Family of Pudong, Shanghai The former chairman of Hong Kong Wanbang Group, Wenjin Cao, was born in 1925 to a wealthy family in Hong Kong. His ancestors had lived for generations on the banks of the Huangpu River in Pudong, Shanghai. At the end of the nineteenth century, as Shanghai gradually transformed into a modernized center of trade, shipping, industry, and commerce, it became one of the most important metropolises in both China itself and the entire world. Wenjin Cao’s great-grandfather was a poor scholar who had four sons, the second of whom was Wenjin Cao’s grandfather, Huazhang Cao. Due to the importance of trade in Shanghai, the Huangpu River, which was connected to both the Pacific Ocean and the Yangtze River, became a vital shipping conduit. During this period, the Huangpu River had few docks and the water was shallow along the edges of the river, making it impossible for large steamships to approach the banks—they could only moor in the middle of the river. If they wanted to go ashore, passengers and crew had to change to smaller boats. For this, Huazhang Cao had a small wooden boat that he took back and forth across the river to pick up crew from foreign steamships. In all seasons, in wind, in snow, he persisted with his water taxi service to provide for his family. One time, Huazhang picked up a drunk foreign captain in his little wooden boat. The captain forgot his purse on the boat, and in the purse was a bill of lading. Thinking about the panic that the captain must have been in, Huazhang picked up the purse and took it onshore to find its owner. Upon receiving his lost money and bill of lading, the captain was thankful beyond words—and to repay Huazhang 2 Upon

the establishment of the socialist government in 1956, China’s family enterprises had to leave the world stage—their “mission,” so to speak, was complete, and they would not participate in the economy again until the reform and opening up in 1978, during which privately operated industries gradually made a comeback.

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for his kind gesture, the captain provided funding for him to begin a career in shipping. With his own 30-ton barge, Huazhang grew his business larger and larger, and eventually started his own shipping company, called “Cao Bao Ji.” For generations, the Cao family has emphasized honesty in business, and Wanbang Group is no exception—indeed, these values act as an internal motivation that keeps the Cao family enterprise alive and vigorous. When Wenjin Cao’s father, Yinyun Cao, was young, the Cao family was already doing quite well financially. Yinyun received better education than the average child, and his English level in particular was notably higher than that of his peers. As a young adult, Yinyun Cao helped out in the family shipping company and learned import and export business at an English firm, Baneman Carnitine Co., Ltd. He not only held a high-level management position in a foreign company, but also opened a small bank, China Quanye Bank, within the territory of a foreign concession. His wife was smart and hardworking as well, and she singlehandedly opened a large-scale jewelry shop called “Tian Bao Cheng House of Silver” on the bustling streets of Shanghai’s infamous Nanjing Road. By the 1930s, the Caos had already become a well-known wealthy family in Shanghai. However, the Japanese invasion caused the Cao family business to take a severe hit: their truck, boat, and other important assets located outside of the foreign concessions were all seized by Japanese forces, paralyzing the “Cao Bao Ji” shipping company. Only the portion of the Cao family business located within the foreign concessions was preserved. Wenjin Cao grew up during these tumultuous years. Once the Anti-Japanese War was won, the civil war broke out, causing prices of goods to skyrocket and leading to great suffering among the people. In 1948, the strength of the CNP was on the decline and it began to transfer its wealth to Taiwan. The government requested Shanghai residents to convert gold and silver jewelry, foreign securities, foreign currency, and other similar assets into gold yuan notes and prepare to flee to Taiwan. Wenjin Cao was only 22 at the time, but he could see right through this exploitation of industrialists at the hands of government authorities. The young and ambitious Wenjin secretly took the gold and silver jewelry from his mother’s business to Guangzhou, then traded it for Hong Kong

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currency and moved it into Hong Kong. From there, he sent nearly 100,000 US dollars worth in gold bars back to Shanghai and kept them in the Bank of Hong Kong. Wenjin Cao’s decisiveness in the face of such strife came partially from being the eldest son in the family—ever since he was a child, he knew that he would be responsible both for inheriting and carrying forward the family business and being the backbone of the family lineage. This was the reason for his exceptional diligence both in his studies and in his life. After graduating, he worked three jobs every day—in the morning, he went to the bank and learned how to do business; in the afternoon, he learned about import and export trading at a foreign company; and at night, he returned home to help out with the family shipping business. He worked long hours each day, despite the fact that it was completely unnecessary to do so given his family’s wealth. His month’s salary at the bank was only enough to buy his mother some fruit. However, he knew that if he was to inherit the family estate, he couldn’t just help his father with the shipping company—he also needed to learn banking and trade. In 1949, after the liberation of mainland China, the entire Cao family headed to Hong Kong. The 100,000 USD that Wenjin had transferred was the family’s only lifeline—the heavy burden of the lives of the whole family were on the shoulders of young Wenjin, who was only 24 at the time when the family moved. The Cao family business, once famous in Shanghai, ceased in mainland China, and a new chapter began in Hong Kong.

Reference Bergère, M. C. (1989). Golden Age of the Chinese Bourgeoisie, 1911–1937 . Cambridge: Cambridge University Press.

8 Modern Chinese Family Lineages and the State

Most scholars have always thought that in China, households and the state are isomorphic: both follow the Confucian concept of status based on seniority, and both display a social structure based on a “differential mode of association”.1 The royal family, as the rulers of the country, followed the patriarchal rules more strictly than any other family lineage. However, in China’s long history, the state—and the government in particular—was often working in opposition to the family lineage. There is a well-known saying in China: it’s hard to be both loyal and filial at once. This inherent conflict often revealed itself in China’s vast rural areas, which was often outside of the radius of government power. As a result, the mass population living in rural areas were often managed entirely by family lineages under the patriarchal system. The head of the lineage could potentially be even more important to the personal interests of the average villager than the emperor himself.

1 See

the section of “Family as a Model for the State” in Chapter 4.

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Starting in the Song dynasty, throughout the Ming dynasty, and up until the Qing Dynasty, as the patriarchal lineage system grew to dominate Chinese society, the relationship between family lineages and the state grew exceptionally close. Especially after the massive powerful and influential family lineages that were commonplace prior to the Tang Dynasty began to disappear, Chinese family lineages helped maintain the rule of the imperial court. The Qing Dynasty government viewed family lineages as an important social force for maintaining their control over the country. Starting at this time, the conflict over loyalty and filial piety between the government and family lineages began to vanish. Family lineages began to accept the concept of loyalty to the emperor into their lineage ethics, and in the family motto, loyalty to the emperor was viewed as an important aspect of lineage education. “The Sixteen Maxims,” promulgated by Emperor Kangxi Qing Dynasty, and “The Sacred Edict” which offered further elaboration by Emperor Yongzheng Qing Dynasty, both became essential educational materials in the lineage ancestral halls. In the perspectives of people at the time, gaining the emperor’s favor was prioritized over gaining the favor of one’s family. When choosing between loyalty and filial piety, the legitimacy of the concept of “Loyalty to the emperor first, filial piety second” was already wellestablished by this point. Aside from emphasizing loyalty to the royal family, lineage education also emphasized the importance of abiding by laws and paying taxes on time. Prior to the emergence of industrialized society, Qing government tax revenue primarily came from agriculture, so in grassroots rural communities, the role that family lineages played in encouraging timely tax payments was an extremely important form of support for the government. Naturally, the government was also well aware of the importance of the family lineages in maintaining the emperor’s authority—and in return for this, the rulers of the Qing Dynasty used various methods to support and protect family lineages. For example, in “The Sixteen Maxims,” the emperor emphasized that harmonious family lineages could be achieved through the construction of ancestral shrines, the creation of small-scale private education institutions the establishment of charity institutions that ensured basic livelihood for less fortunate members of the lineage and also provided education opportunities to

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lineage children, and the compilation of lineage genealogy. Rulers also further expressed their attitude toward family lineages by praising certain lineages for the level of filial piety displayed by their members. The Qing government refined their thoughts in regards to family lineages into the concept of “ruling through filial piety,” an idea that emphasized that caring for and respecting one’s elders was highly important to the smooth function of society under the emperor’s rule. In other government sectors, some large family lineages directly collaborated with the local government, using the strength of the lineage to complete certain tasks or handle certain responsibilities on behalf of government officials, such as the provision of public services and the construction of water engineering projects and public works. When the Taiping Rebellion broke out, the Qing government was unable to offer any resistance of its own—the real warriors who fought against the Taiping soldiers were actually the local gentry, who used the armed militias organized by their family lineages. Following the Xinhai Revolution, China’s ideological and political circles began to criticize the traditional family lineage system and the people called more and more vehemently for the construction of a modern state. Once again the family lineages of modern China became somewhat of an obstacle to change. Qichao Liang once said, in order to create a country and teach Chinese people to become citizens, it was necessary to cultivate their “common virtues.” The country, as well as its society, is constantly evolving and progressing. Previously unheard of concepts such as public welfare began to attack the ideology of family lineages—although family lineages technically still existed, their importance to the country became greatly reduced. Until the authority of the Republic of China stabilized, especially following the success of the Northern Expedition, China once again established a centralized government. In the balance between family and state, the importance of the role occupied by family lineages lightened considerably compared to previous historical periods. In interactions with the government, family lineages were at a significant disadvantage. At the same time, dissimilation occurred among modern Chinese family lineages: there was a small number of lineages that had members who held high-level positions in the government. These individuals would then use their privilege to transform government interests into their

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own personal interests. At times, they would even use their authority to exploit enterprises or take them over altogether. They would use the power of their family lineage to penetrate industrial and commercial enterprises, disguising themselves as capitalists to carry out monopolistic activities. In modern history, these “monopoly capitalist families,” as they are often referred to, impeded social progress and hindered the wealth and strength of the country. One famous example here is the “Four big families of the Republic of China”: the Jiangs, the Songs, the Kongs, and the Chens. One other, more common type of family lineage was one that actively participated in the process of industrialization and modernization. These lineages proved their value by establishing their own enterprises, and they engaged their lineage members directly in operation, and this was the beginning of modern Chinese family enterprises. These family lineages were well aware of the importance of maintaining good relations with the central and local governments. Family lineages who succeeded at their business endeavors virtually all had political relations and representatives within the government. These political ties can also be viewed as a sort of social capital that was used to secure a good relationship with the government, thus ensuring that the enterprise would continue to operate as it should. However, these family lineages did maintain a certain degree of distance from the government. For example, their children and grandchildren were not allowed to hold positions as government officials. These lineages represented a more vibrant and active type of modern Chinese family lineage, and the modern family enterprises that they established are worthy of deep research, as much can be learned from their experiences.

Part III Evolution of Family System Before and After the Reform Era

9 The Rise of Family Business in China Before 1949

Background Starting in the late Qing Dynasty, modernized private companies and business groups began to sprout up all around China. In January 1904, the Department of Commerce of the Imperial Court released “Commercial Laws of the Qing Dynasty,” which included “General Rules for Businessmen” and “Laws for Companies.” Following the release of “Laws for Companies” and other related legislation, China finally had solid statistical data to confirm the actual number of enterprises that existed in the country. According to estimations made by Zhongmin Zhang in “The Arduous Transformation: An Analysis on the Modern Cooperate System in China,” between 1904 and 1910 China had approximately 410 formally registered companies. On the other hand, according to Zengping Lin’s calculations, among the 72 modern enterprises that had existed over the previous 30 years and had searchable records, bureaucratically operated or semi-bureaucratically, semi-commercially operated companies made up 77.6% of the country’s total capital, while commercially operated companies only made up 22.4%. In the short time between Zengping © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_9

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Lin’s estimations and Zhongmin Zhang’s research, the situation reversed, and commercially operated companies now held 76.3% of the total capital. Between 1905 and 1908, China built 201 new factories. Investment reached a total of 45.81 million yuan, 50 new factories were built on average per year, and capital increased at a rate of 11.45 million yuan per year. Total investment was 5.7 times higher than it had been during the Westernization Movement and 2.9 times higher than it had been during the period following the Sino-Japanese War. The range of investment also broadened significantly. Not only did preexisting manufacturing sectors such as silk reeling, cotton spinning, and matchmaking undergo intensive development, but other industries such as tobacco, soap, electric lamps, glass, boilers, pencils, and chemicals also appeared in large numbers in the form of privately run domestic companies. As of 1911, there were already 977 joint-stock modern enterprises in China. From 1911 to 1927, the fragmentation of China by various regional warlords weakened the central government, forming the first “central power vacuum” that China had experienced since the Northern and Southern Dynasties (386 ~ 589 AD). Throughout those years, the system of state-owned enterprises more or less disintegrated, bringing forth an unprecedented rise in privately-owned enterprises. In fact, private enterprises in China enjoyed a rare “Golden Era” of growth and prosperity. A strong wave of “superstar businessmen” emerged, and overall the entrepreneur class had an extremely strong voice in public affairs. The deputy chair of the Chinese Society of Social History, Lixing Tang, wrote in “Businessmen and Modern Chinese Society” that the foundation of domestic industry in China was built during this “Golden Era.” In terms of economic growth rate, despite inconsistence between statistical estimates, this was arguably a period of intense and rapid growth for domestic businesses in China. Some scholars believe that the industrial growth rate reached 13.4% between the years of 1912 and 1920; there was a brief depression between 1921and 1922, after which the growth rate recovered to 8.7% between the years of 1923 and 1926. According to American economist Thomas Roski, between the years of 1912 and 1927, China’s average annual industrial growth rate was at 15%, the highest in the world. Since the collapse of the Qing Dynasty,

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there have only been three periods of time with such intense growth. The other two were the during first 5 Year Plan (1953–1957) and during the reform and opening up period in 1978. Thus, the years between 1928 and 1937 have also been referred to as the “Golden Decade.” In those ten years, economic growth was at an average of 8.7%, and some scholars estimated the average growth rate to be 9.3% or even higher.

New Era Family Entrepreneurs As the economic function of private enterprises grew in importance, the (family) entrepreneurs who were at the head of China’s new business ventures also became increasingly visible. In fact, these entrepreneurs displayed some new characteristics that differentiated them from their predecessors. Firstly, the social status of entrepreneurs as a whole was on the rise, making it no longer necessary to use methods such as bribing officials or buying the privilege of “hong dingzi” (a hard and round red hat with a long tassel that was a symbol of status and glory among Qing Dynasty officials) in order to feel accomplished or be recognized by society. Some of these new-era entrepreneurs even actively and intentionally avoided connecting with government officials since they were now able to gain enough recognition by relying upon their economic accomplishments alone. In urban areas, these new-era entrepreneurs formed an entirely new elite social class which played an important role in urban China’s economic and social developments. These entrepreneurs relied upon the social networks provided by their family lineages and fictive kinship to expand their business operations. On the other hand, the expansion of business activities also helped strengthen their power in the family-centered network. Secondly, for new-era family entrepreneurs, father–son joint governance of the enterprise was quite uncommon. For Chinese family enterprises, it is often assumed that family relationships especially the relationship between father and son acts as the most fundamental piece of family governance. For instance, Yuntai Nie went from being the manager of the Hengfeng Spinning Mill, established by his father, Jigui

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Nie, to being in charge of all of the family enterprise’s divisions. Nevertheless, due to the fast development of China’s economy in the early 1900s as well as the age gap and ideology differences between a father and son, “brother consortium”1 was more common compared to the father– son joint governance. Some notable examples here include Ouchu and Shuzai Mu; Yuntai and Lusheng Nie; Zongjing and Desheng Rong; and Zhaonan and Yujie Jian which we will further discuss below. Based on differences in the talents, personalities, and ambitions of each individual, brother consortium also existed in several different forms and produced varying results. If both brothers were highly talented, had far-reaching ambitions, and got along with each other well, then their prestige and power would be equal—for example, Zongjing and Desheng Rong, the founders of the Rong family enterprise, which has been referred to as China’s biggest also most successful modern family enterprise group. The Rong family’s three manufacturing divisions—Maoxin, Fuxin, and Shenxin—at one point they had a total of over 40 different manufacturing centers. At that time, the Rong family enterprise was the largest business group in China’s flour and textile sectors. Approximately 25% of the fixed assets in these sectors and also 25% of production output were owned by the Rong family, which was commonly referred to as the “King of Flour” and “King of Cotton Yarn.” Another example was the Nanyang Brothers Tobacco Company founded by brothers Zhaonan and Yujie Jian. Among the two brothers, the former was the first to demonstrate his business talents and carry the family company forward. And it was only after he passed away that Yujie shouldered the heavy responsibility that once belonged to his older brother and began to display his own talents as a business leader. In some other cases, one of the two brothers was more well-known, while the other kept a low profile; or one brother was better at public relations and chose to focus on representing the corporate image, while the other was reserved and pragmatic, focusing instead on operations. Brothers Jian and Cha Zhang are an example of such a situation. Jian, because of his prestige in the political arena during the late Qing Dynasty, was much 1 Brother

consortium is comparable to sibling consortium, although the ownership and management are only shared among brothers.

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more highly reputed than his brother. Cha, perpetually overshadowed by his brother, put his business competence to work and spent his time managing the Dasheng Spinning Mill. Brothers Ouchu and Shuzai Mu were a similar case as well. If the ideals of the two brothers did not match, however, or if they were unable to get along harmoniously, then negative effects might arise. The Nie brothers, for example, went their separate ways following the successful establishment of the family enterprise. It should be noted that for Chinese family enterprises in this era, in addition to father–son and brother–brother relationships, the family enterprise might also have various other family connections, such as uncle–nephew relationships. If the family members got along well with each other, then uncles and nephews could have a close-knit relationship similar to a father and son, and cousins could work with each other as brothers. Also, in addition to blood relationships, business family also created relationships with other families through the ties of marriage. For example, when Yuqing Wang, a top manager in Zongjing Rong’s enterprise, became Zongjing’s brother-in-law through the marriage of their son and daughter, the two families became even more tightly knit. It was relatively common for business families to “lock up” managerial talents through the marriages of their family members. Thirdly, new-era family enterprises as well as the family entrepreneurs that created them tended to have a strong focus on industrial sectors that were technologically. Among these were machining, flour milling, textile manufacturing, and various others. For example, following the emergence of the government-run Jiangnan Manufacturing Administration in Shanghai in 1865, around a dozen privately owned machinery manufactures rapidly emerged. According to statistics, at the eve of World War I, there were already 91 machinery manufacturers in Shanghai; and as of 1924, the number had increased yet again to 284. Not only did machinery and repair factories generally require a relatively low amount of capital, but they also could gradually build up investment over time. Because of this, many family entrepreneurs in the machinery sector originated from the field of handicrafts manufacturing and sought investment funds from their families and friends.

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There were also some other larger machinery factories, such as those that manufactured the mechanical equipment or parts needed in manufacturing sectors such as yarn spinning and boat-making. Although this sector was relatively small in terms of the number of factories, the amount of capital needed was immense. Entrepreneurs who took on this challenge generally dabbled in other modern industry sectors as well. Yuntai Nie, for example, also started a spinning machinery plant in addition to his spinning mill. Yarn spinning was a manufacturing sector that was quite heavily saturated with family enterprises. In the 1920s, Shanghai had 19 domestic spinning mills with a total investment input of over 20 million yuan and over 400,000 spindles in total, with an additional 200,000 in the process of being installed (Bergère 1989). Based upon the numbers above, it can be argued that new-era family enterprises at that time were extremely important to the domestic economy as well as the modernization of the whole country. These private entrepreneurs and their family enterprises represented advanced technology, modernized governance of the business, and the spirit of innovation. Family enterprises fitted perfectly with many traditional values and virtues of Chinese society such as diligence, learning from the examples set by others, family harmony, and societal harmony. Indeed, Chinese family enterprises became an important driving force in China’s path to modernization.

Rong Brothers: A Case of New Era Family Enterprise Background 1894 was the year in which the Sino-Japanese War broke out. The war ended in defeat for China, and the impact it left on Chinese society was profound and far-reaching. Firstly, the war was a direct declaration of the failure of the vigorous Westernization Movement. The industrial and military resources that had been accumulated by the supporters of Westernization prior to the Opium War were severely damaged during the war, and the reparations owed by China following its defeat in the

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Sino-Japanese War were a crushing burden on the country’s economy. All Chinese people who lived through that historical event felt its impacts in their own lives. At that moment, the company that Zongjing Rong worked at was forced to close due to the negative impacts generated by the defeat in the war. In the blink of an eye, Zongjing Rong went from having a stable and respectable job to being unemployed, and had no choice but to return temporarily to his home village. His father, Xitai Rong, was deeply saddened that Zongjing had lost his job, and in spite of his poor health, he decided to head to Shanghai and seek out a new job for his son. Unexpectedly, many of his fellow countrymen such as old friends and business partners expressed their opposition and tried to talk him out of his idea. They thought that encouraging his two sons to start their own enterprise was a better idea than finding a new job for Zongjing. Due to many years of experience in banking, Xitai Rong had many extremely wealthy friends as well as friends who worked in the banking sector. In that era, the banking industry was particularly prosperous— business opportunities of all sizes abounded and no special paperwork or approval was needed. Xitai Rong took into consideration the experience that his two sons, Zongjing and Desheng, already had acquired by working in the banking sector, as well as the considerable amount of financial resources that he had accumulated from his life of hard work. He decided to take out 1500 silver coins as a starting fund and raised an additional 1500 from other sources for a total of 3000 silver coins. He then took these funds to Hongsheng Wharf, Shanghai, and established the Guangsheng Bank. It was not a particularly large bank based on the industry standards of the time, but it served its purpose as the starting point for the business venture of the Rong brothers. The two brothers slowly began to demonstrate, refine, and strengthen their entrepreneurial spirit and talents. Guangsheng Bank was the predecessor to the immense Rong family enterprise group that would be built in the following years.

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Three Legacies In 1896, Xitai Rong, who had helped his sons take the first step in establishing their own bank, fell ill from overworking himself and passed away at the age of 48. Guangsheng Bank had only just been established at the time of his passing, and he did not have the opportunity to witness the massive commercial empire that his sons would construct in the future. However, the three legacies that he left behind would form the basis of the future success of his sons, and even laid the foundation for the endless entrepreneurship of the future generations of the Rong family. The first legacy was his wealth—in other words, material inheritance. Xitai Rong started his company from almost nothing. Only after spending his life working in debt was he able to accumulate a significant amount of wealth and entrepreneurial capital, which he then left to his sons. This startup fund was extremely critical to the formation of the Rong enterprise of today. The second legacy was his entrepreneurial talent and business operating skills, which he passed on to and cultivated in his sons. When Zongjing and Desheng Rong were children, Xitai sent them to banks and businesses to serve as apprentices instead of allowing his sons to be shackled into the traditional path of studying to prepare for imperial examinations. The practical experience that the two brothers acquired in the banking industry gave them bountiful returns in their future entrepreneurial endeavors. The third legacy of Xitai Rong was the way in which he cultivated and shaped the ideology, spirit, and character of his sons. When the boys were very young, Xitai Rong firmly established the importance of the guiding principle of “if one wishes to establish himself, he should also seek to establish others. If one wishes to enlarge himself, he should also seek to enlarge others” in their minds. When his sons started their apprenticeship, Xitai began to teach them how to engage in business in a sustainable manner as opposed to impulsively pursuing fame and wealth. During periods of social unrest and turbulence, he used the infamous work “Zhou Yi” (The Book of Changes, the oldest of the Chinese classics and referred to by many as one of the world’s greatest treasures of wisdom)

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as an example to teach his sons how to discover new opportunities and further develop themselves during periods of crisis. To a certain extent, the three legacies that his sons inherited, and the way in which the inheritance took place, embodied the characteristics of Chinese family enterprises. Zongjing and Desheng not only inherited material wealth, but also human capital, entrepreneurial spirit, and various other factors that are essential for successfully building a company. This method of inheritance is one that can only exist in a family enterprise. Legacies such as these can only be successfully passed on through the tightly knit bonds of blood relations and through day after day of learning by perception and example from dawn to dusk. Once the inheritance is successfully passed from to the next generation and the next generation realizes the deep importance of what they have received, they will continue to pass these legacies down to further generations, creating a culture and DNA that is unique to family enterprises. This characteristic of family enterprises even has a special name that it is referred to by some modern-day scholars: “familial.” In upcoming chapters, we will see again and again the way in which this inheritance took place in the Rong family enterprise, as well as the roles that it played.

From Bank to Flour Mill In the early stages of the business venture, the Rong brothers each displayed their own individual strengths and engaged in smooth and tacit cooperation. For example, Zongjing had an extroverted personality, a pioneering spirit, and strong communication skills. These abilities made him a good choice for the manager of the bank, and he was responsible for contacting and communicating with business partners. Desheng, on the other hand, had a simple appearance and a wise heart. He was of calm and meticulous character, making him well-suited to being in charge of accounting. The bank achieved stable development under the close cooperation of the two brothers. Later on, due to clashes of interest between the other shareholders, the Rong brothers decided to become the sole shareholders of Guangsheng Bank. China had already entered the early 1900s

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at this time, and new-era manufacturing methods had already thoroughly penetrated China via the trade activities of Western powers. Along with new-era production methods came abundant profits. Modernized flour factories held a very important position in the manufacturing economy of the time and were tax-exempt. Many of Guangsheng Bank’s clients were from the flour industry, and the Rong brothers witnessed firsthand the powerful development of the flour manufacturing sector as well as its bountiful profits. Taking into consideration that most of the major flour enterprises were foreign brands, the brothers decided to establish their own domestic enterprise and use their success to give back to their country. Once they made their decision, the two brothers got to work on some of the critical issues they would face in establishing their own flour mill. The first issue was funding. The flour industry required a comparably large amount of investment, and the profits they received from operating Guangsheng Bank were nowhere near sufficient to start-up their own flour manufacturing plant. Therefore, the Rong brothers went to an old friend of their father, Zhongfu Zhu, and asked him to collaborate with them and provide support to their new enterprise. Zhongfu had been a family friend for many years and was very familiar with the honest and hardworking nature of the Rongs. He was interested in collaborating with the brothers and by chance he had just resigned from his job as a government official. He passed Shanghai on his way back to Suzhou and picked up several other interested investors while he was there. The new enterprise now had a total of thirteen shares: a total of 39,000 yuan at 3000 yuan per share. Among them, Zhongfu Zhu was the largest shareholder, accounting for five shares; the Rong brothers had one share each; and two members of the Rong lineage, Ruixin Rong and Bing Rong, had three shares and one share, respectively. Other small shareholders accounted for two shares in total. The shareholders were divided based on their location of origin: Jiangsu shareholders were headed by representative Zhongfu Zhu, and the Rong brothers represented the Wuxi shareholders. The group selected a suburb of Wuxi as the location for their new enterprise, which they named “Baoxing Factory.” Zhongfu Zhu was the managing director, Desheng Rong was the manager, and Zongjing Rong was the wholesale manager. Since Zhongfu Zhu came

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from a government official background, he knew little about operations, the market, or technology—because of this, the actual management rights were in the hands of the Rong brothers. The startup phase of Baoxing Factory was not exactly smooth sailing. The ability of the Rong brothers to run their own factory was tested repeatedly by a series of challenges. For example, the local government and conservative feudal forces were not particularly accepting of this newfangled flour factory and generated obstacles in terms of land use and various other issues. Fortunately, the Rong brothers were well-versed in law, and they simultaneously used the bureaucratic influence of their biggest shareholder, Zhongfu Zhu, to mediate the conflict and achieve a favorable resolution. In the startup phase, the Rong brothers’ new factory also regularly encountered challenges related to the market, technology, human talent, and various other aspects of running an enterprise. During this time, the entrepreneurial talents and spirit that the two brothers had inherited from their father, Xitai Rong, came into play. After the flour factory was constructed, the first challenge that they encountered was how to break into the market and how to get everyday people to accept and acknowledge this new product. In addition to having strict quality controls and improving the quality of the manufactured product, the Rong brothers put significant effort into discovering and hiring outstanding marketing talents. Yuqing Wang, who would later hold an important management position in the Rong family enterprise, was discovered by the brothers at this particular time. Shortly after Yuqing Wang was introduced to Zongjing Rong, he amazed him with his incredible marketing talents and honest character. Baoxing Factory recruited Yuqing Wang at a salary rate several times higher than the original offer, and Yuqing used his outstanding job performance to pay the Rong brothers back for their trust in him. Aside from actively influencing the market, the Rong brothers also put heavy emphasis on increasing the technological capabilities of their factory and worked hard to catch up to the level of the Western powers. Right when the development of Baoxing Factory got on track, some differences arose between the development planning strategies of the major shareholder, Zhongfu Zhu, and the actual managers of the factory,

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the Rong brothers. Zhongfu Zhu offered the highest amount of up-front investment, but due to his background as a bureaucrat, he knew little about how to manage a business. In 1903, he went to Guangdong to continue to serve as a government official, causing him to further lose interest in the physically and mentally exhausting task of operating a factory, so he decided to withdraw from his position as shareholder of Baoxing Factory. The divestment of the factory’s major shareholder right as the factory was beginning to achieve steady growth presented a significant challenge to the Rong brothers. Their first move was to ask a fellow Rong shareholder, Ruixin Rong, for assistance. Ruixin assured them that he would help manage the factory and would not withdraw from his position as shareholder. The brothers also approached the comprador of Jardine Matheson Bank, Lanfang Zhu, in search of funds for their enterprise. At first, Lanfang Zhu sought to purchase the factory altogether, but the Rong brothers were well aware of the value of Baoxing Factory and expressed clearly that they were only seeking to attract investment and had no plans to sell. At the same time, they decided to invest the surplus funds from Guangsheng Bank—a total of 30,000 “liang”(a weight-based unit used to measure the silver dollars that were used as currency at the time—30,000 “liang” is the equivalent of approximately 83,300 yuan)—into the factory. Through internal mergers and transfers among shareholders, the Rong brothers’ shares were increased to 41.68%, making them the relative controlling shareholders. During this same period, the name of the factory was changed from “Baoxing” to “Maoxin.” Once the Rong brothers accumulated a respectable degree of wealth, they made sure to help out their family lineage members: for example, when Ruixin Rong, a member of the Rong family lineage and one of the starting investors of Baoxing Factory, expressed his interest in attracting investment to build a spinning mill, Zongjing Rong and Desheng Rong each offered 30,000 “liang” in shares to support Ruixin’s Zhenxin Spinning Mill. During the construction planning stages of the new spinning mill, Desheng Rong used his social status and personal network to help the factory get through various bureaucratic obstacles and opposition from conservative powers. However, later on, flawed and negligent management caused Zhenxin Spinning Mill to suffer massive losses. This

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in combination with the immense amount of money that the founder, Ruixin Rong, lost in the stock market, forced the Zhenxin Spinning Mill onto the verge of collapse. At the same time, the Rong brothers’ enterprise also encountered a threat: the turmoil in the stock market also affected Guangsheng Bank, which the brothers and their father had established together. The head of the Rong family lineage, Fuling Rong, came to the brothers and explained to them that the Zhenxin Spinning Mill had absorbed a huge amount of Rong family investment as well as many talented members of the Rong family who were now working at Zhenxin. Fulin expressed to the brothers his hope that they could extend a helping hand to the struggling Zhenxin Spinning Mill in the name of lineage friendship. Confronted with such a situation, Zongjing and Desheng Rong resolutely decided to shut down the Guangsheng Bank and use their limited funds as investment for the Zhenxin Spinning Mill. With Zongjing Rong as the new chair of the board and Desheng Rong as the new managing director, the two brothers set straight to work to revitalize the struggling factory. Through the hard work of the Rong brothers, Zhenxin Spinning Mill was steered away from disaster and losses were transformed into profits. Later on, clashes occurred between the operating styles of the Rong brothers and the original founder of the mill, Ruixin Rong. Under the coordination of lineage head Fuling Rong, both parties exchanged their respective shares in the Zhenxin Spinning Mill and Maoxin Flour Mill to avoid conflict between owners and managers in either one of these enterprises. Up until 1911, their ownership ratio of 91.5% made the Rong brothers the absolute controlling shareholders of Maoxin Factory.2 By this point, the two brothers had successfully established a flourishing modern enterprise. They clarified and settled property rights within the company and made sure that ownership and management rights held equal weight—both of these steps are critical to the healthy development of an enterprise. The brothers became proficient in their

2 Data

are obtained from “Historical Materials on the Enterprises of the Rong Family” (in Chinese), 1962, Volume One. Shanghai Renmin Publisher, p. 15.

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decision-making ability and in the selection of their enterprise’s development strategy. Note that the Rong family played an important role throughout the brothers’ entrepreneurship process. In a society that still had yet to develop a mature financial system, private loans came almost entirely from one’s family lineage, backed by the mutual trust between lineage members. Ruixin Rong and brothers Zongjing and Desheng Rong were all members of the Rong family lineage—as long as one was interested in the other’s business affairs and confident that the enterprise could succeed, they would be willing to offer their trust and investment funds. When an enterprise encountered difficulties or obstacles, family lineage members as well as pan family members would generously use their social capital to lend a helping hand: for example, the way in which Zhongfu Zhu and Desheng Rong both used their social status to help out in the construction planning process of a new factory. When a clash occurred between the owners and managers of a factory, arbitration and reconciliation would be facilitated by other members of the family lineage, helping to smooth over the conflict more efficiently and effectively and preventing the two feuding parties from taking the issue to court or fighting endlessly (Figs. 9.1 and 9.2). Throughout the startup phase of the Rong Brothers’ enterprise, one can clearly see the positive influence of the wealth and knowledge that Xitai Rong passed on to his sons. The Rong brothers’ initial capital was provided by their father: Xitai himself had started up his enterprise from scratch, and the few thousand silver dollars that he had accumulated from the hard work he put into support his family were the “seeds” from which the towering “trees” of the Rong brothers’ enterprise would later grow. From a very early age, the Rong brothers were sent by their father to work as apprentices in a bank, and it was this experience that allowed them to flourish in the intensely competitive “battlefield” of the business world. Something else that Xitai did to ensure his sons’ success in their future endeavors was to educate the two boys differently based on their personalities and aptitudes. As they grew up, the Rong brothers formed their own unique management styles, allowing them to make the best use of their personality characteristics and individual talents. In addition to providing his

Fig. 9.1 Zongjing Rong’s family tree

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Fig. 9.2 Desheng Rong’s family tree

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sons with startup financing and quality education, Xitai also instilled the boys with an entrepreneurial spirit, which helped them overcome the various challenges and obstacles they encountered throughout the process of establishing their enterprise. The two boys deeply understood the guiding principle of “if one wishes to establish himself, he should also seek to establish others; if one wishes to enlarge himself, he should also seek to enlarge others” that their father had taught them. For example, they were willing to put aside personal interests and abandon the bank that they had established with their father in order to help their fellow lineage members. Their aspiration to use the success of their factory to give back to their country was also a sign of how deeply they understood and identified with the guidance their father had given them. The entrepreneurship of the Rong brothers is a classic example of the way in which modern Chinese family enterprises were established, and it is a successful representative of the countless family enterprises that emerged as China entered modern industrial society. The period during which the Rong family enterprise was in its startup phases was also, by chance, a period of turmoil and transformation in Chinese society. During this stage of Chinese history, China began to transform from a completely agrarian society to a modern industrial society. Accompanying this change was a shift in the ruling regime. Starting in the late Qing Dynasty, the power of the central government weakened significantly. The entire country lacked the stable institutions that were needed to facilitate industrial development, so family enterprises began to penetrate the market and compensate for the vacuum formed by the lack of a formal system. Indeed, the family enterprises of this time period achieved economic stunning achievements. The simultaneous flourishing development of family enterprises and the temporary retreat of government power was not a coincidence: in fact, it was the first “national government backs down, people step up” phase experienced by Chinese family enterprises ever since the start of their existence. Successfully establishing an enterprise is but only one part of the equation. In order for a family enterprise to maintain competitiveness throughout the future after its successful establishment, it is necessary to continuously and thoroughly analyze the governance of modern Chinese family enterprises.

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Governance of Rong’s Family Enterprises The Rong brothers established a massive family business group on the foundation formed by the Maoxin Flour Mill. The Rong family business group encompasses multiple enterprise systems that are involved in various manufacturing sectors such as flour milling and yarn spinning. The governance and management of such a massive business group presented a new challenge to the Rong brothers once they had successfully passed through the startup phase. Maoxin Flour Mill was the first established division in the Rong group. As described before, Maoxin Factory (as well as its predecessor, Baoxing Factory) was established jointly by a group of shareholders which included the Rong Brothers. The brothers were also the primary managers. Although they were receiving some surplus revenue from leading the Guangsheng Bank, singlehandedly running a modernized flour mill was a formidable task. The brothers’ financial status, technological knowledge, reputation, and level of vigilance in terms of avoiding risks were all nowhere near what was needed. Therefore, both Maoxin and its predecessor Baoxing Factory operated with multiple investors. In modern-day financial terms, shares were more dispersed and the ownership rights and control rights were relatively separate. For example, in the early stages of Baoxing Factory, the largest shareholder was a retired bureaucrat, Zhongfu Zhu. For quite a long time following Zhongfu’s withdrawal from the group of shareholders, the shares of the Rong Brothers were not much larger than those of the other shareholders. Viewing this perspective, it can be argued that the enterprise of the Rong brothers was imitating the modern Western model of a limited liability company in which ownership and management are separate. However, following Zhongfu Zhu’s withdrawal, once the Rong brothers exchanged shares from Maoxin and Zhenxin factories with Ruixin Rong, they began to intentionally increase the ratio of their shares in Maoxin Factory one step at a time, until finally in 1911 their share ratio reached 91.5%. This process of changes that took place in the shareholding ratio of Maoxin Factory was, in fact, the transformation of the Maoxin factory into a family enterprise.

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In 1912, the Rong brothers established the Fuxin Flour Mill in Shanghai. Unlike Maoxin Factory, from the very beginning, the ownership and management of Fuxin Factory was unified. All of the shareholders in the newly constructed Fuxin Factory participated in the factory’s management, collectively engaging in the entire process of the company’s development. Under this new management structure, Fuxin developed vigorously. The Rong brothers continued to expand the scale of operation. First, they rented Zhongxing Hengji Flour Mill in Shanghai and built No. 2 Fuxin Flour Mill next to it. During this time, they also began to conduct construction planning for No. 3 Fuxin Flour Mill next to the original one. This method of renting a factory to expand was a pioneering move on the part of the Rong brothers. Indeed, they took advantage of the low cost of renting a poorly performing flour mill, then used their management skills to transform the production of the factory and acquire significant returns. They then used these profits to purchase the factory that they had been renting, achieving a complete acquisition. Two years after the Rong brothers began to rent the Zhongxing Hengji Flour Mill, their profits were high enough to purchase the entire factory, which they re-named as No. 4 Fuxin Flour Mill. They used this same strategy in Wuxi to rent Huiyuan Flour Mill and Taiyong Flour Mill, the former of which was later transformed into No. 2 Maoxin Flour Mill. They also began to make plans for new factories in Henan, Shandong, and other regions. In 1915, once they had accumulated a substantial amount of management experience in the flour manufacturing sector, the two brothers— always on the lookout for a new business opportunity—established Shenxin Textile Co, Ltd in Shanghai with 300,000 yuan in registered capital. Zongjing served as the managing director of the new enterprise. The Rong brothers took to the flour and textile industries like fish to water, and the Rong family enterprise system grew increasingly complex. In order to effectively manage the entire enterprise group, in 1921, the Rong brothers established a new company in Shanghai. The new company was called Maoxin/Fuxin/Shenxin Corporation, or Sanxin (“Three Xins”) for short. The capital of building the new company came from the profits of the brothers’ factories, and Zongjing Rong served

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as the general manager. Under this role, he was fully responsible for Sanxin, and the company implemented a system of centralized leadership. The managers and factory directors of the individual factories that belonged to the Sanxin group took full responsibility for production and operation, while the head office exercised centralized control over the purchase of materials, sales of products, and allocation of funds for each factory. Excess funds generated by these individual factories were kept at Sanxin at a slightly higher interest rate than external banks. Sanxin Corporation raised funds for each factory at a higher interest rate than a loan from a bank—this interest served as the corporation’s profit. Each factory became a workshop with independent accounting qualifications, but much of the authority was in the hands of the headquarter of the business group. Through this method, the Rong brothers were able to maintain strict control over the entire enterprise group and ensure proper allocation of resources to each of the member factories.

Family Governance as Burdens? Just as the Rong family enterprise grew prosperously, some common issues that even puzzle family business practitioners nowadays started to arise. The first issue is to manage the relationship between the majority shareholders (controlling shareholders) and the minority shareholders. Starting from Maoxin Factory, the Rong brothers paid particular attentions to centralizing ownership rights and actual control rights. In the Fuxin and Shenxin systems, the Rong brothers were extremely careful to ensure that their share ratio was at least 50%. Such an approach ensured that the business group can be operated according to the Rong brothers’ thoughts and ideas. Nevertheless, it also caused conflicts with some of the minority shareholders. For example, for a long period of time, the brothers did not offer a cash dividend to shareholders. Instead, they used dividends as additional investment for the factory. This frustrated the minority shareholders, who were denied of a cash income and were unable to enjoy the fruits of the factory’s success. On the other hand, the factory’s leaders

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and managers had their usual salary, bonuses, and other benefits that came with their control rights. Such a system would naturally cause the minority shareholders to lose patience: feeling that there was no chance of getting a return for their investment, many minority shareholders chose to withdraw. From the viewpoint of the Rong brothers, however, when an enterprise is in the startup phase, it needs as much funding as possible to expand production. If the factory’s profits are repeatedly divided up and handed out to the shareholders, then it will be difficult for the enterprise to accumulate financial resources and receive reinvestment, therefore preventing it from reaching its full potential. During this time period in particular, when China’s modern domestic capital was relatively weak, the Rong brothers were more concerned about strengthening their enterprise and ensuring its ability to compete with foreign industries. The second issue was how to govern the business family. In the startup phase, family members are often united as one and act as a vigorous and positive force that propels the development of the new enterprise. Family capital is used to fund the business. Social networks formed by family friends, marriage, and other relationships also help accumulate social capital that can be used to expand business activities. For example, when the Rong brothers had just began the startup phase of their enterprise, their father’s close friend, Zhongfu Zhu, used his social status to help the new company overcome various litigation disputes. Once the company was developing steadily, two high-level managers, brothers Yaochen and Yuqing Wang, married into the Rong family. Other family members also began to join the new enterprise one by one. Not only did the sons of the Rong brothers gradually began to engage in the managing of the company, also the husband of Desheng’s oldest daughter, Guowei Li, took charge of the Rong family’s commercial affairs in Wuhan. The Wuhan branch of the Rong’s business group became a fairly independent division and held a high status in the entire business group. However, as the business group began to expand, conflict was unavoidable even between family members. For instance, Desheng Rong’s sonin-law, Guowei Li, had some conflicts with the Rong family. Aside from building many factories in Wuxi and Shanghai, the Rong family enterprise also set up No. 4 Shenxin Textile Mill and No. 5 Fuxin Flour Mill

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in Wuhan, a city located midstream along the Yangtze River. The actual control of these factories was in the hands of Guowei Li, who facilitated the moving of these factories to the southwest during the Anti-Japanese War. To a very large extent, these two factories were independent from the Rong family’s business group. While the factories were relocated during the war, Guowei Li was on one hand encouraging high-level management in the factories to buy shares. And on the other hand, he was increasing the dividends that high-level management would receive if they became a shareholder. These actions caused Guowei Li’s influence in these two factories to overshadow the Rong family’s influence, also diluted the ratio of shares held by the Rongs. As described earlier, due to the lack of sound external institutions, the Rong brothers had much more control rights over their enterprise than whoever owned any of the factories on paper. Out of concern that someone might try and grab ahold of the factory’s control rights after acquiring enough ownership rights, the Rong brothers preferred an operating mode in which both of these rights belonged to them. Desheng Rong didn’t expect that his own son-in-law would play this game with him, let alone try and break off into an independent production unit altogether. Naturally, neither party was willing to give into the other. However, due to the urgency of the war and the fact that Guowei Li was located far inland, the situation was out of reach of the Rong family, forcing them to compromise. In the end, No. 4 Shenxin Textile Mill and No. 5 Fuxin Flour Mill were transformed into a joint stock limited company in which ownership and management were separate. The governance of the Rong’s family enterprise group is complex. It encompasses many companies and factories in a variety of different sectors such as banking, finance, flour milling, and textile manufacturing. The distribution of ownership and control rights of every individual unit is different. Also, the governance-related issues that the Rong family business group has encountered throughout its history are highly diverse, including the typical conflicts that occur between shareholders and management as well as between majority and minority shareholders. There have also been issues related to family members acting on behalf of one another, as well as issues that take place between the enterprise itself and the institutional environment in which it exists. Also, the next

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generations of the Rong family had a high level of participation in the family business, and almost all of the sons of Zongjing and Desheng Rong worked in their fathers’ enterprise. The presence of family ownermanagers made it so that, in reality, the managers had to govern both the business itself as well as the business family. Note that the Rong brothers had used several approaches in dealing with issues related to family governance. Firstly, property rights were clearly laid out at very early stage. Although the Rong brothers were cofounders of their family enterprise, they were still very clear about the shareholder and ownership status of the various members of the family. In fact, although the interests of the two brothers were united for a long time, they were still well aware of exactly what amount of shares they each held. Of particular importance was that once the second generation began to enter the family business, the shares that these newcomers held were divided up based on their fathers’ shares. For example, though household division3 Desheng Rong divided up the family assets and determined how many shares each of his sons would receive. Secondly, communication and coordination among the family members was quite efficient. In fact, although Zongjing and Desheng Rong had very different personalities also different strategies in managing the company, the two brothers were always able to understand and support each other. They resolved conflict by seeking common ground while reserving differences, and in times of crisis they helped and trusted each other. Indeed, the old saying “blood is thicker than water” played a critical role in the business affairs of the Rong family. Thirdly, the Rong brothers made sure to draw the second generation into the workings of the family business group as early as possible, allowing their sons to become skilled managers. The successors acquired their skills through observing the elder generation and learning by doing, and by the time the Rong brothers reaches an age of retirement, their children had already taken over the family business group. According to the results of a survey conducted in 1928, the Rong family business group contained a total of 54 managing director, manager, and deputy manager (deputy factory director) positions, of 3 See

Chapter 4 for detailed discussions of the tradition of household division in China.

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which 19 were held by Zongjing Rong, who was the managing director of every one of the Rong family factories. Of the remaining 35 positions, Zongjing’s younger brother Desheng held three positions; three of the Rong brothers’ sons held four deputy manager or factory director positions, other members of the Rong family held five positions; members of other family lineages who became tied to the Rongs through the bonds of marriage held 14 positions; trusted allies of the Rong family held five positions; and partners and engineering experts held five positions (Bergère 1989) (Fig 9.3) (Table 9.1).

Turbulent Times The Rong family enterprise was able to thrive in a society that lacked sound institutions and was preserved throughout the disintegration of the feudal system, the collapse of the dynastic government, the civil wars of various warlords, the impact of foreign forces, and the Japanese invasion. This is primary because the Rong brothers were able to fully use their personal talents and abilities, also because they were able to motivate their fellow family members to manage the family enterprise. After victory in the Anti-Japanese War, China entered a time of peace. However, the Rong family enterprise was unable to enjoy a new period because of the early passing of Zongjing Rong. Also, such a period is featured by the exploitation of domestic enterprises at the hands of the corrupt Nationalist Party government and the kidnapping and blackmailing conspired by villainous government officials. Although the Rong family enterprises could use their strengths to resolve the threats stemming from the outside world, they were simply unable to fight back against the corrupt government. In the 1920s, after the successful Northern Expedition led by the Nationalist Party of Nanjing, the entire country entered a period that was fairly politically stable. This time period can be viewed as a continuation of the rise of private enterprises that took place at the end of the Qing Dynasty following the failed Westernization Movement. But unfortunately, this period was short-lived. Shortly after the stable establishment of the Nationalist Party, the government began to step up its

Fig. 9.3 Rong family members and their jobs in the family enterprise

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Table 9.1 High-Level positions in the Rong family enterprise Relationship to the Rong family

Number

Percentage

Members of the Rong family Members of the family of spouses of the Rong family Trusted Allies Business partners and professionals Total

31 14

57.4% 25.9%

5 4 54

9.2% 7.4% 100%

Source Bergère (1989), The Golden Age of the Chinese bourgeoisie, 1911–1937

interference in economic activities and created masses of state-owned enterprises, returning the country to the path of government-led industrialization and modernization. This sort of government intervention was a trend all around the world throughout the 1920s and 1930s, and it greatly repressed the development of Chinese family enterprises. As Japan became increasingly aggressive toward China, family enterprises were once again negatively impacted by war. After the war was won, the economic policies of the Nationalist Party continued to follow the trend of exerting maximum control over the country. At the same time, China gradually slipped into a whirlpool of civil war that would continue until the establishment of the new socialist China in 1956. The second renaissance of modern family enterprises was squashed before it even fully began. However, successful family enterprises were still able to survive and went on to form an important foundation for the industrial development of the new China.

Legacies in Rong’s Family At the beginning of this chapter, we mentioned how the Rong family enterprise was, in fact, a single act of inheritance between father Xitai Rong and sons Zongjing and Desheng Rong. Zongjing and Desheng inherited three things. The first was material assets, primarily composed of the few thousand silver coins that Xitai had accumulated by the time of his passing as well as the Guangsheng Bank that the three men had jointly founded. This material wealth was a critical starting point upon which the Rong family enterprise would grow and develop.

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The second legacy was Xitai Rong’s talent as a businessman. In his youth, Xitai studied accounting and banking. And he sent Zongjing and Desheng to banking and business apprenticeships to ensure that they too would gain these proficiencies at a young age. The third legacy was his entrepreneurial spirit. He worked tirelessly his entire life, built his business from scratch, and had accumulated a reasonable wealth by the time he reached old age. Therefore, when educating his sons, he repeatedly emphasized the importance of being industrious also the importance of discovering and taking advantage of opportunities. Throughout their lives, the Rong brothers carried out the teachings of their father. Zongjing devoted his life to establishing a powerful business group, while Desheng was best at intensively cultivating struggling companies into profitable businesses. As Desheng himself put: he and his brother were entrepreneurs, not capitalists, since they took all of their wealth and put it back into their business. Their aim was to provide a salary to hundreds of thousands of people, not to enjoy a luxurious and wealthy lifestyle from their profits. When preparing their sons for succession, Zongjing and Desheng Rong also passed on the same three legacies as their father. Naturally, they ensured that their sons had an excellent foundation of material wealth, and the division of company shares was planned out clearly from the start. When it came to cultivating their sons’ entrepreneurial skills and abilities, the Rong brothers relied primarily on formal education as well as vicarious learning through observation and learning by doing. This allowed their sons to receive a high-quality education and learn professional knowledge while also training their entrepreneurial skills in a low-level position in the family business. While working in the family business, they also got an opportunity to learn how to manage a company by observing and interacting with their father and uncle. In terms of passing on entrepreneurial spirit to the next generation, Zongjing and Desheng had rigorous expectations of their sons. On one hand, their sons were expected to manage the family enterprise or at least some divisions of the enterprise independently. The sons were often requested to work independently on a particular task or singlehandedly manage the production and operation of a factory.

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Descendants of Rong Brothers The legacies that Zongjing and Desheng Rong passed on to their children yielded fruitful results. The oldest of Zongjing Rong’s three sons, Hongyuan Rong (1906–1990) graduated with a bachelor degree in economics from Shanghai Jiaotong University. He served various positions such as deputy director and factory director in No.2 Shenxin Textile Mill. In 1938, following his father’s death from illness, he took on the role of general manager of Sanxin Corporation. He also established the Sanxin Bank along with his younger brothers. Later on, he headed to Brazil where he started a new flour company. Hongyuan had four children, one son and three daughters. Zongjing’s second son, Hongsan Rong (1906–1983) graduated from Saint John’s High School and once held the position of director of savings for the family enterprise, after which he served as deputy general director of the company. In 1949, He moved to Hong Kong then to the United States, where he acquired residency. Zongjing’s third son, Hongqing Rong, was still a child at the time of his father’s passing. He is now the chair of the board of the Taiwan Shanghai Commercial Savings Bank. At the age of 24, he went to Hong Kong to manage the Rong family’s Nanyang Yarn Factory. After 55 years of operation, he shifted his attentions of business to Taiwan and handed off the factory to his son, Zhiquan Rong. In recent years, he has been engaged in various charity endeavors in mainland China. Zongjing also had four daughters. The oldest, Zhuoqiu, married Lifang Ding, a man from her hometown. Zongjing’s second daughter, Zhuoren, married “Silkworm King” Shouxuan Xue, and his third daughter, Zhuo’ai, married Yuncheng Wang, the son of Yaochen Wang. Yuncheng went on to serve as the manager of No. 1 Shenxin Factory, and he moved to Hong Kong in 1949 and took charge of the Nanyang Yarn Factory. Zongjing’s fourth daughter, Zhuoru, married George Hardoon, the step-son of a wealthy Jewish family, the Hardoons. Desheng Rong had seven sons, all of whom were involved in running the family enterprise and were quite successful in their business endeavors. Desheng’s oldest son Weiren Rong graduated from Nanyang University with a degree in economics and served as the deputy factory

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director of No. 2 and No. 5 Shenxin Yarn Factories. He was then transferred to No. 1 Factory, where he served as the manager and made notable contributions to the family enterprise. Due to being overworked, he passed away from nasal cancer in 1939. Weiren had three sons and four daughters. His first son, Zhijun, is deceased, while his second son, Zhiqian, and third son, Zhixin, live in Hong Kong and have made commendable achievements working in the electronics industry. All of his four daughters live abroad. Desheng Rong’s second son Erren Rong started his career as a low-tier public works employee, then gradually made his way to factory director positions at the family’s factories such as Shenxin No. 2 and No.5 Factories. He then went abroad and resided in the United States, where he helped manage textile mills, flour plants, rubber plantations, and various other enterprises in Brazil. Erren has six sons. Desheng’s third son Yiren studied abroad in the United States at the Lowell Textile School (now known as the Lowell Technological Institute). Tragically, he later passed away in a plane crash. His three sons and five daughters are all living abroad. Desheng’s fourth son, Yiren Rong4 was often considered as a notably representative of modern Chinese entrepreneurs. Before the establishment of China PRC, he worked in various management positions in the family enterprise. After 1949, Yiren served in a variety of important military and political positions in the new Chinese government, such as being a member of the East China Military and Political Committee, the deputy mayor of Shanghai, and the deputy head of the Department of the Textile Industry. After the Open0up and Reform 1978, he became the chair of the board and general manager of the China International Trust and Investment Corporation, and in 1993, he was selected to be the Vice Chairman of the People’s Republic of China. Yiren Rong had one son, Zhijian, and four daughters. Zhijian once served as the deputy chair of the board and general manager of CITIC Group (Hong Kong) Co., Ltd, and was the most outstanding entrepreneur of the grandchildren of Zongjing and Desheng Rong. 4 Although

having the same pronunciation, the third and fourth sons have different names in Chinese characters.

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Desheng’s fifth son, Yanren also studied abroad in the United States at Lowell Textile University, then joined in on the establishment of a new startup, the Tianyuan Hemp Textile Factory. In 1949, he moved abroad, and had two sons and one daughter. Desheng’s sixth son, Jiren, tragically passed away in 1948. His seventh son, Hongren, studied the flour industry in the United States, then immigrated to Australia, where he had three daughters. Desheng’s oldest daughter, Muyun, married Guowei Li, who was once in charge of the Shenxin No. 4 and Fuxin No. 5 factory system. In 1950, Guowei served as the Vice Governor of the Hubei Province, a representative of the National People’s Congress, a member of the Standing Committee of the CPPCC, and various other political or administrative positions. Desheng’s third daughter, Minren, married Meiyang Song, the son of Hanzhang Song, the General Manager of Bank of China, and his fourth daughter, Zhuoya, married Guowei Li’s cousin, Jiyao Li. Desheng’s fifth daughter, Maoyi, married Xiongyuan Tang, son of Jiyun Tang, a famous industrialist in Wuxi, and his sixth daughter, Shuren, married Tongyi Yang, son of Weiyun Yang, deputy minister of the Beiyang Government Ministry of Finance. Desheng’s seventh daughter, Jifu, married Bozhong Hua, son of Yi Hua, a famous businessperson in Wuxi, then later remarried to Daoming Wei. Desheng’s eighth daughter, Yizhen, married one of the later generations of the Hu Qing Yu Tang Pharmaceutical Company. Starting from Xitai Rong, the succession of every generation of the Rong family has taken place successfully. Each time, the new successors inherit the same three legacies that Zongjing and Desheng received from their father: material wealth and assets, the skills needed to run a business, and entrepreneurial spirit. The success or failure of this inheritance determines whether or not a family enterprise will be able to outlive its founders and continue to develop and grow far into the future. This inheritance will also determine whether or not the family members can retain the same excellence displayed by the enterprise’s original founders. Each of these three different aspects of inheritance all has its own important purpose. However, it can be argued that the passing of entrepreneurial spirit from generation to generation is often

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the most important also the hardest one. In fact, failures in family business succession do not generally occur as a result of lack of capital or lack of management skills among the next generation. Rather, the succession is often hampered by a lack of motivation and entrepreneurial spirit among the family business successors.

Lessons Learned The Rong family enterprise does an excellent job of representing modern Chinese family enterprises. It was built in the period following the failure of the Westernization Movement in the late Qing Dynasty. The Chinese family enterprises born during this period were important drivers of China’s modernization and industrialization. Ever since its establishment, the fate of the Rong family enterprise has been closely tied to the fate of modern China. When conditions were favorable for development, family enterprises and business families would be able to exploit family centered resources, making some Chinese family enterprises comparable to some of the world’s most powerful companies. On the other hand, when the social and economic environment was unfavorable, family enterprises could hire their own family members and use family related social networks or social capitals to protect the family property, ensure that contracts were carried out as originally agreed, and generally push the enterprise’s development forward. The history of the Rong family enterprise demonstrates three of the major issues that need to be resolved by family enterprises: establishment, governance, and succession. Traditionally, in the research of family enterprises, these three issues are analyzed separately. However, after conducting an in-depth investigation of the Rong family enterprise, it appears that these three issues are inherently connected and should be analyzed together. Below, we use the Rong family as an example to explain the relationship between establishment, governance, and succession. Firstly, family governance is the essential means through which family business succession can proceed. While scholars often emphasize the importance of motivating and nurturing of second-generation family members as

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well as the detailed design of the succession planning, in reality, the transfer of leadership role from founding to second generations is of a higher extent of importance. Ownership and management rights, in turn, must be clearly laid out even when the junior generations remain relatively young. Then, upon the junior generation’s entry into the company, they are already well aware of their rights and responsibilities, allowing for the effective separation of public and private affairs as well as family and business affairs, thus preventing negative spillovers either from family to business or from business to family. For example, the division of company shares among the later generations of the Rong family were explicitly specified and the specific positions that each family member held in the company were assigned based on individual talents and abilities. The clear-cut distribution of ownership rights allowed the future generations of the Rong family to enjoy the wealth surplus generated by the family enterprise while also contributing to the family’s business by using their own talents and interests to build their career. Secondly, issues in family business governance can be revolved by encouraging later-generation family members to establish their own businesses. Once a family enterprise reaches a certain size, it will unavoidably face various issues such as the conflicts among shareholders, rising agency cost, and the slowdown of family human capital. A possible breakthrough is to encourage the next generation to continue generating new business endeavors, and to use newly created ventures to search for new opportunities such that the family enterprise can continue to grow. In other words, by making the “cake” of family enterprise larger, each family member is able to get an bigger slice of share. The Rong family enterprise, for example, encouraged junior generations to engage in their own business startups, and many family members established factories overseas to avoid direct competition with the headquarter enterprise. As soon as a family member decided to start a new business, other family members could use cross-shareholding to support the new business venture. For example, when Yiren Rong’s son, Zhijian Rong, went to Hong Kong in search of his cousin, he did not “cash out” his stake in his cousin’s business. Instead, his goal was to get his cousin to offer shares as a support for his new startup. In this way, the territory of the entire family business group were continuously pushed forward and beyond.

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Lastly, the establishment of a new family venture should be coupled with nurturing family business successor. In fact, the establishment of a new family venture goes far beyond simply founding a new company. There are three essential ingredients in the startup phase: input of capital, introduction of talented management staff, and the pioneering and persevering spirit of an entrepreneur, all three comparable to the three legacies that the Rong family passes to late generations. Note that in the startup phase of a first-generation family enterprise, what is most lacking is material capital and the skills to manage a business. Entrepreneurial spirit, however, is bountiful. Once the family enterprise has reached a certain size where the time comes to hand the reins to the next generation, a new issue arises. That is the second “establishment” of venture creation phase in which the older generation passes on the most important information about their enterprise as well as their entrepreneurial spirit to the younger generation. Using the Rong family enterprise as an example, the limited amount of capital and knowledge that Zongjing and Desheng Rong received from their father, Xitai Rong, is incomparable to what future generations inherited from the massive Rong family business group. However, the entrepreneurial spirit that the boys inherited from their ancestors would benefit them for their entire lifetime.

References Bergère, M. C. (1989). Golden Age of the Chinese Bourgeoisie, 1911–1937 . Cambridge University Press. Shanghai Social Science College, Economic Research Institute. (1962). Historical Materials on the Enterprises of the Rong Family” (in Chinese), Volume One. Shanghai Renmin Publisher, p. 15.

10 Dynamics of Family Enterprise Before and After the Reform Era

Introduction In the 40 plus years following the “Open-Up and Reform,” the political, economic, social, and cultural institutions in Chinese society underwent massive changes. Family households are comparable to the “cells” of society: they are the bridge through which family members interact with the outside world. The immense transformation that the society and the economy underwent inevitably brought in changes in Chinese households. Several factors including institutional reform, marketization, and the frequent exchanges between Chinese and Western cultures further contribute to the evolving of the structure and function of Chinese households and the intra-family relationships among family members. Using Fukuyama’s words (1996, pp. 83–84), “the Chinese communists came to power in 1949 determined to break the hold of Chinese familism on Chinese society. They believed, incorrectly, that the traditional patrilineal Chinese family was a threat to economic modernization. But they also saw, with greater clarity, that the family was a political competitor, one that weakened the hold that ideology and nation would have over this vast country. As a consequence they understood a series of measures designed to destroy the traditional family: ‘modern’ family law, © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_10

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outlawing polygamy and guaranteeing the rights of women, was introduced; the peasant household was split asunder through collectivization of agriculture; family businesses were nationalized or otherwise expropriated; and children were indoctrinated to believe that the party, not the family, was the ultimate source of authority. The family planning measures designed to constrain China’s explosive population growth by limiting families to single child was perhaps the most frontal assault on traditional Confucianism with the latter’s millennia-old imperative to have many sons. But the communists vastly underestimated the staying power of Confucian culture and the Chinese family, the latter of which emerged from the past half-century of political upheaval stronger than ever. A proper understanding of the role of the family in Chinese culture is key to understanding the nature of Chinese economic society, as well as that of other familistic societies around the world.”

Family System Before 1977 Prior to the reform, rural communities in China were operated under a system of three administrative levels including People’s Commune, Production Brigade, and Production Team. People’s Commune was the highest of three levels. And as the lowest level Production Team was the most fundamental unit of agricultural production. Nevertheless, Production Teams were not assembled based on blood relations. In fact, brothers from the same family were often put in separate production teams, and communes and production brigades often intentionally watered down the concept of family household when creating production teams. Unfortunately, this approach shook the foundation of family-based production that had prevailed in China for centuries. At most, a family could sporadically engage in “sideline” production such as raising some poultry or livestock or planting crops in their yard or on the corners or edges of cropland. This sideline agricultural production primarily served to satisfy commune members’ need for economic diversity. Nevertheless, the ratio of families that engaged in sideline production was not particularly large. In the 1960s, even in the Miao

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Village production team of the Shacheng Commune of Huailai County in Hebei Province, which was described in official reports as being an advanced model of production team, household-based sideline production only generated 11–15% of the team’s total income. During this period, households were virtually unable to participate in socioeconomic activities as a production unit. The production functions that households had prior to the establishment of China PRC gradually disintegrated. The movement to transform Chinese rural society into a communebased system transferred the agricultural labor force out of individual households and redistributed people into production units. Throughout the entire country, production teams rapidly replaced households as China’s fundamental production unit. This movement quickly drained all enthusiasm that the peasantry had for production. “Working without actually contributing” or freeriding became commonplace due to the villagers’ lack of motivation. The production team system violated the laws of economic development, and tragic results were quickly apparent. Starvation plagued the country, people’s livelihood withered away, and the economy was in a state of collapse.

Eliminating Households: A Social Experiment Production brigades evolved from “mutual aid groups,” which formed in the period following the establishment of China PRC 1949. Production brigades were a type of grassroots cooperatives, but in reality they functioned somewhat like a large “household.” All members of the production brigade were led by the brigade leaders, which included the captain, deputy captain, women’s captain, accountant, cashier, custodian, livestock caretaker, clerk, and horse- and ox-drawn cart captain. The captain of the production brigade had some special privileges, although they too had to work alongside the other members. At times, they would simply strike a symbolic pose in the fields. Deputy captain, however, did not have this privilege. In fact, the deputy captain had to be skilled at various errands of farm chores, and they were responsible

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for leading farm work, guiding brigade members to improve their farm skills, and monitoring the quality of everyone’s efforts. The women’s captain had an important role in the production brigade as well. They not only organized the participation of female brigade members in some auxiliary farm tasks, but also worked alongside the male brigade members, helping out with tasks such as plowing and harvesting. The accountant managed all of the earnings and expenditures of this brigade “household.” All of the brigade’s earnings came from budgeting and calculations by the accountant. The cashier was responsible for managing all of the income of the production brigade, including sideline production. If the cashier gathered a few greedy friends and chipped larger pieces out of the earnings, the production brigade could easily slide into poverty. The custodian was responsible for storing and keeping watch over food provisions, seeds, and all of the farming tools that belonged to the brigade. The custodian had to be someone of good character that wouldn’t prioritize their own benefit over the welfare of the entire group and get greedy at the sight of all of that food. People who stole for themselves while watching over the brigade’s food provisions would not be selected for this important task. The livestock caretaker was responsible for feeding the horses and oxen that were collectively owned by the brigade. Horses are accustomed to eating at night, so this job was generally handled by older brigade members who were lighter sleepers and were less bothered by getting up in the middle of the night to feed the horses. The horse- and ox-drawn cart captain was also a very important member of the brigade. Aside from being responsible for delivering packages with the carts as a form of sideline production, this individual was also hard at work in the fields with everyone else. Whenever an event took place among the commune members, such as a wedding or funeral, the horse- and ox-drawn carts were an essential part of it. In the fall, everyone used the horse- and ox-drawn carts to send sticks and branches from the mountains down to the villages to use as tinder to keep warm in the winter months. The reeds used to form the thatched roofs of houses were delivered by the brigade’s horse- and ox-drawn carts from the banks of the Naoli River, hundreds of kilometers away. One can only imagine

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the bitter cold faced by the animals and drivers on this lengthy journey. Drivers weren’t paid for their voyage—but on their return, they were treated with a hearty thank you dinner by the family who benefitted from their services.

Family Household in People’s Commune Prior to the reform and opening up, the production teams led by the People’s Communes intended to repress the functions of households, especially their production function. On the other hand, in many overpopulated areas the food production was not able to satisfy the basic needs. Under such conditions, villagers began to independently improve their household income through other activities—for example, growing cash crops, engaging in trade, and making handicrafts. Later in this chapter, we will discuss another family case: the Mao family in Cixi, Ningbo. The Mao family is used as an example to explain what rural family households were like in the 1960s prior to the reform and opening up in China. As readers might notice, rural enterprises and family enterprises that were born starting in the late 1970s were a reflection of the recovery and progression of China’s householdbased economy. One reason behind the success of the “Open-up and Reform” is in the rediscovery, affirmation, and encouragement of the entrepreneurial spirit of countless family households During the Spring and Autumn Period (approximately from 771 to 476 BC), Cixi belonged to the Yue Warring State, which was comprised of parts of modern Zhejiang and Jiangsu provinces. During the Qin Dynasty (221–206 BC), it became a county, referred to as “Juzhang.” It was only in the 28th year of the reign of Emperor Xuanzong Tang (738 AD) that its name was changed to Cixi. Cixi has 77 kilometres of coastline. It is densely populated and is mostly composed of hills and tidal flats, with few flat plains. During the Jin (266–420 AD) and Tang (618– 907 AD) dynasties, the Shanglin Lake celadon produced in Cixi began to be sold to other countries, contributing to the “maritime silk road” that connected Chinese commerce with the rest of the world. Cixi is also called “Tang Tu Song Di” which is referring to the massive engineering

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project that the region underwent to turn the swampy and muddy lands into arable ground. During the Tang Dynasty, the area was a marsh, and during the Song dynasty, it became viable agricultural land. This extremely long tidal marsh reclamation project that the region carried out helped to forge the pioneering character of the residents of Cixi. Cixi’s immigrant culture goes very far back in the region’s history. The women and girls of Changhe, Cixi, were well-known for their golden straw hats that they wove, which were sold abroad and even earned Changhe the honor of being called “The Land of Straw Hats.” In his work “Ningbo and its Hinterland,” well-known Japanese economic historian Shiba Yoshinobu wrote a fascinating description of the economic activities, corporate and professional specializations, and local specializations of Ningbo, which Cixi is a part of.1 Following the three years of natural disasters which plagued China from 1959 to 1961, during which the country’s planned economy suffered from severe supply shortages, the government began to allow peasants to use their sideline production activities to boost local economies. At this time, the country’s state-owned enterprises in urban areas were also unable to meet demands. In densely populated Cixi, where there were only four “quarters” (one quarter is the equivalent of 2/3 of an acre) of land per capita, state- or collective-owned enterprises belonging to the production team began to take root in the vacuum that formed from the inability of government-operated enterprises to meet the entire country’s needs. Mr. Lixiang Mao recalls: “In 1964, Pinghua Zhang, First Secretary of the CPC Hunan Provincial Committee, dared to speak the truth: he wrote a letter to Chairman Mao, describing the hardships faced by the peasantry. Through some friends in Hunan, I got ahold of the reply letter sent by Chairman Mao to Pinghua Zhang. The response was a single sentence: ‘In areas where conditions permit, the people can set up agricultural product processing plants.’ I was very excited at this, and I immediately got some wax paper to copy the letter

1 “The

City in Late Imperial China” (in Chinese) (edited by Andrew Skinner), Zhonghua Book Company, First Edition (2000), pp. 469–526.

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and share it with everyone. Thanks to this letter, we were no longer afraid to start-up collective enterprises in our communes.”2 On April 15th 1965, well aware of the hardships that the people were experiencing, under the acquiescence of the provincial leadership, the cadres of the Changhe Town People’s Commune in Cixi entrusted Lixiang Mao with the task of establishing the town’s first collective enterprise: the Comprehensive Factory of Changhe Town. At first, the factory relied primarily on the local specialty, woven straw hats, to bolster local income. At that time, the farmers of Cixi could only grow cotton, which was then purchased by the government for unified marketing. Locals were not allowed to independently buy or sell the cotton they produced. The new factory could only use leftover materials from the state-owned garment manufacturing enterprises or purchase fabric scraps collected from households all around the region then ship the scraps back to Changhe Town. The old women of the town would then use pedal-operated ginning machines to press the scraps into cotton wool, after which the wool would be spun into cotton yarn using China’s most traditional weaving tool, invented during the Huang Dao Po era of the Song Dynasty. Then, the women would use pedal-operated looms to turn the yarn into cloth which they would use to make protective clothing and gloves for the factory laborers. Pressing old fabric into cotton, spinning the cotton into yarn, and weaving the yarn into cloth were all doable in one’s own home, which ensured that the laborers of the collective had sufficient spare time. The peasants working in agricultural collectives gained “work points” for their labor in the fields, and at the end of the year, these points could be exchanged for food provisions. For each day of labor at the Changhe Town Comprehensive Factory, peasants received 0.2 yuan in cash compensation. Lixiang Mao recalls everyone in the town scrambling toward the front of the line to grab semi-finished products to complete at home or in the factory. In 1966, Lixiang Mao also took part in the founding of a cottonseed oil plant. He was the head of sales at both the comprehensive factory and the cottonseed oil plant, and he was responsible for connecting 2 Interview

between the authors and Mr. Lixiang Mao, August 2010.

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with enterprises all over the country. Under the instructions of the leaders of the planned economy, no private production of other products (including sideline agricultural production) was permitted. Collectives were only to complete government-allotted task plans. If other products were traded privately in the marketplace, this was viewed as capitalist behavior. When the county government came to Changhe to investigate the town’s collective-owned enterprise, they accused Lixiang Mao of fabricating the letter from Chairman Mao and banned the peasants from engaging in sideline production until concrete evidence could be found that the letter was indeed written by Chairman Mao. In 1976, Ningbo specially established the Bureau of Collective Enterprise Management and set up a three-level administrative system composed of city-, county-, and commune-levels. Through this action, collective-owned enterprises were officially acknowledged by the local government. Collective-owned enterprises primarily engaged in primary industries that served the needs of local farmers. Among these were palm leaf processing plants (these leaves were woven together and used to make waterproof ponchos for farmers working in the rain), agricultural equipment manufacturers, or other units focusing on producing life-necessity tools and equipment. These enterprises rarely brought in new technical innovations or reached larger scales of development. In the late 1970s, the reformation of China’s rural system began to reduce the peasants’ absolute dependence on villages and communes. Once family households could once again serve their purpose as fundamental economic units, quality of life in rural China began to rise. At the same time, in urban areas the reformation had not yet begun. As a result, collective-owned enterprises in rural China were exposed to a variety of different business opportunities, and began to engage in several manufacturing sectors including hardware processing, plastic processing, cotton textile manufacturing, synthetic fiber manufacturing, and various others that provided the food, clothes, homes, everyday items, and equipment needed by rural populations. Collective-owned enterprises gathered the talented technicians, managers, and salesmen that would be essential to the township and village enterprises and domestic enterprises of the future. This example shows the immensity of the foundation of valuable

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resources—including human talent, information, knowledge, and technology—that facilitated the rapid development of village, township, and family enterprises in coastal provinces following the reform and opening up. Family households were the most fundamental organizing unit of these new enterprises. In the following section, we will introduce the evolution that Chinese households following the reform and opening up. At the end of the chapter, we will continue our discussion of the Mao’s family enterprise.

Dynamics of Family System After 1977 Below we will discuss external and internal factors that affect the dynamics of family household after 1979.

External Factor: Industrialization and Urbanization Directly following the establishment of China PRC, the country began to explore how to industrialize. At the time, China mostly learned from the Soviet Union, with a particular focus on the development of heavy industry. China used a planned economy system to propel urbanization through industrialization. Following the 1978 reform, China established a series of foundational guiding policies that would transform the country’s economic structure from a planned economy to a socialist market-based economy. Within the period of a little over 30 years, the Chinese economy underwent extremely rapid growth and the annual GDP growth rate was maintained at over 8%. Urbanization in post-reform China took place in three stages. The first was from 1978 to 1985, during which the country’s city and town population grew rapidly. The second stage was from 1985 to 1995, during which city and town populations were undergoing steady growth. And the third stage started in 1996 and has continued up until today with fairly rapid shifting of populations from rural areas to towns and cities.

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Correspondingly, urbanization also had three characteristics. The first was that the number of cities was continuously growing, skyrocketing from 193 in 1978 to 655 in 2007. The second was the rapid rise in urban population. Compared to the 30 years leading up to 1978, the level of urbanization in the country increased on a huge scale. The third was the immense enhancement of the comprehensive strength of Chinese cities: the economy, the composition of the manufacturing sector, the arrangement of urban and suburban space, the basic infrastructure in urban areas, and various other aspects underwent apparent changes and developed in increasingly rational ways. Overall, industrialization and urbanization exerted influence on family households in two main aspects: employment and marriage. Industrialization reduced the reliance of individual family members on their family. Family members could engage in economic activities outside of their households and receive financial compensation, making it possible for family members to escape from the control of the traditional patriarchal household and choose their own lifestyle, encouraging individual independence. At the same time, the influence of the family on individual households was reduced as family members started to leave their hometowns to work in other places. “The importance of households as a mode of property inheritance gave way to their importance as a labor unit: this not only weakened the control of parents over the marriage choices of their children, but also reduced the ability of the traditional overbearing patriarchal system to use the promise of property inheritance to force children to obey their parents” (Li 2000). Goodlad (1984) once claimed that the source of economic resources that individuals acquire through the labor market helps to reduce the ability of parents to control their children since the child no longer depends on their household for income. An individual’s career is mostly determined by their abilities and character, and the influence of their household, on the other hand, is minimal. Once it becomes possible for people to earn more by working outside of the household, more individuals will head out to find work elsewhere, significantly reducing their reliance on their household. Therefore, in less industrialized places, people are more likely to rely on their households. On the other hand, as the degree of industrialization increases, individuals are more likely

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to find employment outside of their household, gradually reducing their reliance on their families. Industrialization and urbanization also influenced marriage in China. One of the most important functions of the traditional patriarchal household was its function as a conduit for the inheritance of property. Family members relied on their household for income, so children had no choice but to accept the marriages arranged by their parents. Industrialization and urbanization continuously strengthened individual independence, bolstering peoples’ right to choose who they want to marry. As marriage independence continuously rose, equality between husband and wife also rose relative to the traditional patriarchal households of the past, and shifted toward “dual” households in which the patriarchal and matriarchal sides hold similar roles instead of one acting as the head of the household.

External Factor: One Child Policy It is evident from historical experience that with each occurrence of a major societal change such as war, society settles back down and the economy recovers, and the population will grow at a relatively rapid rate. One example here is the population of baby boom that took place in the United States following the Second World War. China is no exception—in 1949, following the establishment of the new China, the country’s population rapidly increased from a 16% growth rate in 1949 to a 23% growth rate in the 1950s. Average annual births increased from 10 million in 1949 to nearly 15 million in 1957. The total population swiftly increased from 540 million in 1949, to 670 million in 1959. The rapid population boom continued all the way until China was plagued by three continuous years of natural disasters. And following this period, population once again continued to increase at an extremely fast rate. The rapid increase in population generated immense pressure on the country’s existing resources, and the government had no choice but to add population planning to the country’s economic and social development plan. In 1973, the State Council established the family planning

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leading group and set in place the “late, sparse, few” guiding policy (“late” referred to later marriage ages; “sparse” referred to maintaining larger time gaps between births; “few” referred to a birth limit of two with the exception of minority ethnic groups). In March of 1978, during the First Meeting of the Fifth People’s Congress, the new policy was written into law as “State-Advocated State-Promoted Family Planning.” On October 26th of the same year, “Ideally, a husband and wife should have only one child, and can have a maximum of two, with a gap of at least three years between births” was clearly stated as part of the “Report on the first plenary meeting of the State Council Family Planning Leading Group.” In 1979, during the Second Meeting of the Fifth People’s Congress, the “Encourage families to have only one child” policy was clearly put forward and on March 23rd of the same year, Xiaoping Deng also addressed the overpopulation issue: “Population growth must be controlled. Laws should be established to restrict population growth.” In September of 1980, the “One Child Policy” was officially introduced during the Third Meeting of the Fifth People’s Congress, which was held from August 30th to September 10th in Beijing. During that meeting, Article 12 of the “Marriage Law” was passed, dictating that “Married couples are obligated to carry out family planning.” While the government was speeding up the introduction of family planning laws and regulations, institutional arrangements became increasingly standardized. In 1973, there was only the Family Planning Leadership Group established by the State Council. In May of 1980, the Family Planning Association was formed, composed of 50% government officials and 50% representatives of the common people. In March of 1981, during the Seventh Meeting of the Fifth People’s Congress, the government decided to establish a national-level Family Planning Committee. Upon the establishment of this committee, the country finally had a formal institution that was independently responsible for family planning. Family planning policies began to be viewed as a fundamental national policy, and proper implementation began. In early 1982, the CPC Central Committee and the State Council issued “Guidelines on Further Ensuring the Success of Family Planning Work,” which clearly stated: “Government employees and urban and suburban residents, with the exception of those who have been

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approved under special circumstances, may only have one child per married couple; in rural areas, it is generally advocated that a married couple only have one child. Some communities, due to difficult circumstances, may require a second child, which can be arranged for in a planned manner after the approval process is completed and permission is granted. In no case can three children can be born to one married couple. For ethnic minorities, family planning should also be promoted, although the requirements can be loosened as suitable. Family planning work should continue to promote late marriage, later births, fewer births, and higher-quality births. It is necessary to control population growth and improve the quality of the population.” That same year, all levels of family planning management departments from national to local were bolstered by improvements in corresponding government institutions. This strengthening helped to ensure the successful implementation of this fundamental policy. In recent years, China has further formalized and institutionalized the implementation of family planning policies. In the year 2000, the CPC Central Committee and the State Council issued “Decision on Strengthening Population Control and Family Planning Work to Stabilize Low Fertility Levels,” and in 2001 the government issued and began to implement the “Population Control and Family Planning Law.” The CPC Central Committee and the State Council issued “Decision on Comprehensively Strengthening Population Control and Family Planning Work and Solving Population Problems” and “Regulations on Family Planning Work in Regards to Floating Populations” in 2007 and 2009, respectively. In the roughly 30 years following China’s economic reform, family planning policies effectively reduced birth rates in China and achieved the transformation from “high birth rate, low death rate, high population growth rate” to “low birth rate, low death rate, low population growth rate.” Although some scholars question the official statistic put out by the Population and Family Planning Commission that the family planning regulations caused China to have 400 million less births over a period of 30 years, conservative estimates of least 100 million less births are undebated.

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Internal Factor: Changes in Household Functions In the 30 or so years following the economic reform starting in 1978, due to the increasing rate of industrialization and urbanization as well as the implementation of family planning policies, households visibly shrank, nuclear families—rather than extended ones—started to become the most basic unit in Chinese society. This section will discuss four internal factors contributing to changes in family households. These factors are household function, household structure, household relationships, and people’s concept of “family.” Traditional Chinese households or family lineages were responsible for the vast majority of social functions, including family finances, religious rituals and ancestor worship, the education of family members, childbirth, and caring for the elderly. Before the 1978 reform, due to the presence of People’s Communes and the associated administration system, many functions that households traditionally had were severely repressed. After the reform, huge shifts in society as well as rapid economic development caused significant changes in household functions. Some household functions had been reduced to a nearly nonexistent state, while other functions reappeared or were strengthened. Households in post-reform China evolved from simply focusing on production, life, and business, to being modernized, open-minded, and prosperous. Modern industrialization, education, and welfare systems continuously took over traditional household functions such as education, caring for the elderly, and childbirth, further pushing shifts in household function. Following the 1978 reform, the production function of households had recovered. The establishment of the Household/Contact Responsibility System in rural China in the late 1970s as well as the development of the urban private sector in the 1990s was both greatly beneficial to the development of the production functions in Chinese households. The Household/Contract Responsibility System originated in Fenghuang, Anhui Province. According to the system, households are held responsible for the profits and losses in their own lands. Different from the People’s Commune which intended to mitigate the imprinting of family household, this system planned to use family household as the basic

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production. For rural family households, after completing state-assigned obligations they had the autonomy over the fruits of their labor. Rural households became self-motivated: they not only increased agricultural production and served as an outlet for the peoples’ desire to produce goods, but also activated the market-based economy. From 1980 to 1981, an increasing number of Commune-based collective agricultural production systems were transformed into household responsibility systems. By 1981, 51% of the households in Southeast provinces and Shandong province had already adopted the household responsibility system. In 1982, the Central Committee of the CPC announced its “No.1 document” for the year, Minutes of The National Agricultural Work Meeting, which officially established the household responsibility system for China’s agricultural production. By the time of 1984, compared to the era of the People’s Commune, the overall agricultural GDP increased by 68% and the average income of farmers increased by 166%. Another important factor affecting Chinese family household was the rise of private sectors. Up until the year 1979, China had a total of roughly 150,000 urban and suburban-dwelling businessmen (Huang 2008). However, most of them were not legitimate, and their business activities could be described as “underground” at best. In the late 1970s, in order to properly resettle the unemployed urban population that was stirred up as a result of the Cultural Revolution, new reforms were made. The government vigorously supported the use of commercial organizations or so-called “enterprises”—especially in some newly created industries such as consumer goods and service— as a form to reduce unemployment and potentially stimulate national economy. One consequence of this approach is to spawn countless “red hat” (state-owned) enterprises. On the other hand, the reforms noticeably spurred the government to acquiesce to and even secretly encourage the aforementioned “underground” businessmen to actively expand their economic activities. On August 7, 1980, the CPC Central Committee forwarded “Further ensuring success in urban labor and employment efforts.” This document was the first to propose the guiding principle of “Under the unified planning and guidance of the state, employment by assignment through

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governmental labor departments should be integrated with voluntarilyorganized employment and self-employment.” This opened up a variety of employment channels including state-owned and collective-owned enterprises as well as self-employment. On October 17, 1981, the CPC Central Committee and State Council issued another related document, “Decisions on Opening up Various Channels, Revitalizing the Economy, and Solving Urban Employment Issues,” which proposed the vigorous guidance, encouragement, promotion, and support of collective-owned and self-employed enterprises. These employment reforms led to policies that provided a favorable environment for private enterprises. The long-repressed entrepreneurial spirit of the people was finally released. Urban households were no longer restricted to earning wages from working for state-owned enterprises. In contrast, they began to directly generate employment opportunities and earn income on their own. For family household, the change of employment often started from individual family members, then gradually spread outward toward the whole family. The childbirth function of households weakened compared to prereform China. Households are the cells of society, and the household is where new generations of mankind are created. However, due to the nationwide family planning policies established following the reform and opening up, childbirth became a part of the nation’s economic and social development plan, strictly interfering with the childbirth function of households. Simultaneously, as the society and economy continued to develop, people were much less likely to have children for the sake of carrying on one’s patriarchal family or ensuring someone would look after them in old age. Instead, many families began to raise children to satisfy their emotional needs. As described earlier, the birth rate in China quickly dropped following the reform and opening up. The function of caring for the elderly was also reduced. This was partially due to the trend toward nuclear family as well as the shrinkage of household size. At the same time, the function of households as a place to care for the elderly was gradually replaced by the pension system partially supported by the government. Nevertheless, pensions cannot never completely replace caring for the elderly in the household. In reality, it is often observed that parents choose to live independently

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while still maintaining frequent contact with their children, or they can live in the home of one of their married children (“stem households”). The function of households as a place for educating children also gradually weakened. China has put increasing emphasis on the importance of school system, and right now the majority of the education that an individual receives takes place in schools, not at home. However, in the years following the reform and opening up, one child became extremely commonplace due to nationwide family planning policies. The idea of “putting the children first” started to motivate Chinese parents paying particular attentions on the education of their children. As a consequence, prenatal education to in-home tutoring has been emphasized considerably in recent years. Indeed, despite the domination of out-of-home learning institutions, the auxiliary education function of households has played a very important role in Chinese society.

From Household Networks to Business Networks “Household network” refers to a relationship network composed of multiple core households who have blood relations. Network household members do not necessarily all have the same surname. The biggest difference between China’s traditional big family households and the household networks that emerged following the 1978 reform lies in the fact that the latter does not engage in cohabitation or shared finances. Each household that is a member of the “network” is relatively independent. However, just as when a lotus root is broken it is still connected by many small fibers, these individual households still connected with each other regularly in their everyday activities. According to a series of interviews of 72 managers in Chinese family enterprises in Taiwan, Hong Kong, and Southeast Asia, Redding (1990) revealed the cultural origins of the behavior of Chinese entrepreneurs and enterprises. The most important finding was “weak organization and strong linkages.” Among China’s countless family enterprises, one can find various types of network relationships that are based in the expansion of the household or family relationships, including the flow of financial and human capital as well as business partnership between family members.

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Through a field investigation of a total of 13 private township enterprises in two villages in China (Xiangdong Village, Zhejiang Province; and Yuanpingtun Village, Shanxi Province), Zhu (1998) found that household networks had two primary functions. The first was to act as a source of capital in the early stages of entrepreneurship, and the second was to fill the managerial positions in the operation of the enterprise. Using Xiangdong Village as an example. In Enterprise No. 1, four children of the chair of the board, Zuwei Xiang, as well as his three nephews and one niece are all shareholders of the enterprise. In Enterprise No. 2, Zhonggen Wang and his brother are the primary shareholders of the company. In Enterprise No. 3, nephew–uncle relationships acted as the primary ties upon which shareholder relationships were formed. Enterprise No. 4 was similar to No. 2: the shareholder relationship was formed on the basis of the Yan brothers. The shareholders of Enterprise No. 5 and 6 are based upon expanded household networks including more relatives even close friends. Enterprise No. 7 was similar to 2 and 4: co-founded by the three Xiang brothers. From the seven cases described above, one can see that relationships between shareholders tend to be based on some family relationships, and family members have a shared fate and undertake the risks of the enterprise together. The capital accumulation among household networks played an extremely important role in the early stages of private enterprises. From the interviewed managers in Xiangdong Village, it is clear that high-level positions in these enterprises were taken by members of the household network that formed around the founder of the business. The person in charge of operation (the factory director) was either the founder or their direct children. Accounting positions were also filled by the family members closest to the founder. The family members holding the above-mentioned positions were also shareholders in the company. In addition to the recovery and strengthening of the production function of Chinese households, consumption functions strengthened as well. In the 30 or so years following China’s reform and opening up, the economy underwent rapid growth and production capacity continuously rose, reversing the economic shortages that plagued the country in previous years. Income levels and spending power continuously rose, and people’s consumer attitudes, levels, and methods—as well

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as various other aspects of consumerism—changed significantly from the old consumer patterns of pre-reform Chinese households. Once urban residents no longer struggled to afford food and clothing, they began to enjoy comfortable well-off lifestyles. Consumer attitudes shifted from survival-based to a new consumerism that focused on high quality of life. Sectors such as entertainment and tourism became hotspots in China’s new consumer culture.

Internal Factor: Changes in Household Structures Overall, in the thirty-plus years following the reform and opening up, Chinese households have become more diversified, also have become smaller in size with more nuclear families emerging.

Diversified Family Structure Firstly, following the 1978 reform, as society and economy continuously developed, efficient and fast lifestyles became the first choice for people in contemporary China. The traditional form of households, in which family members all lived together, gradually disappeared and was replaced by nuclear family-based households composed of a husband and wife and their unmarried children. This will be further discussed later in this section. In addition to the ever-increasing of nuclear families, other various types of household emerged such as childless couples, “empty nesters,” single parents, non-married individuals, and unmarried cohabitating couples. As China’s economy developed, social competition became increasingly fierce, and married childless couple with dual income (Dual Income No Kids, DINK) have become increasingly common in China. The emergence of DINK families was firstly due to work-related issues: the faster pace of life and the growing amount of competition in society caused many people to choose to focus more on their own survival instead of raising a second generation. Also, the DINK families came as a result of the influence of developed western countries, as many young married couples made a “‘no family’ planning” decision. Of

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course, similar to western economies there are also many other married couples that have no choice but to choose this lifestyle due to biological difficulties. “Empty nesters,” on the other hand, are households in which the children have already grown up and left the home to work or study. In these households, due to the departure of their children, the elderly parents live on their own. Additionally, the massive shifts that have taken place in society have generated psychological pressure on married couples— the desire to live independently that comes when conflicts between the two individuals escalate have caused the country’s divorce rate to continuously climb, leading to the creation of more and more single-parent households formed out of one divorcee and their child or children. Statistics show that single-parent households are growing at a rate of 2.3% per year (Ke and Guo 2003). As single-parent households become increasingly commonplace, the absence of one parent in the household generates negative impacts on the child’s psychological health and various other aspects. While discussing household relationships, Xiaotong Fei once stated that “in the course of human history, mankind has found what seems to be the most effective way to raise children—and that is a dual parent household. And as soon as the husband or wife of that household leaves, the affection and education that the child receives from that individual is incomplete, or even malformed” (Fei et al. 1992). Single-parent households are a trend that is on the rise, and households in which a single unmarried individual lives on their own have also become more common over years. Social mobility has sped up since the 1978 reform: due to workrelated issues or other reasons, individuals may choose to leave their homeland and move elsewhere, creating a large number of singleton households. In rural areas, this is even more widespread. Most of China’s rural population work as laborers in other towns and cities in more economically developed provinces, or even find employment in other countries. Various reasons may make it unfeasible for an entire family to move, so countless rural families are split into “left-behind households” in which one or both parents earns money elsewhere and the children, elderly, and possibly the wife remain at home.

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Unmarried cohabiting households have also become increasingly commonplace. These households have generated a sizeable impact toward the institution of marriage in China as well as people’s concept of and behaviors related to marriage. On the surface as well as in actuality, unmarried cohabitation does not differ significantly from traditional married households. However, compared to married couples, the households of couples who practice unmarried cohabitation are significantly less stable.

Rise of Nuclear Families It is also noticeable that the ratio of nuclear family households tends to continuously climb. In a research report that analyzed household structure in five cities: Guangzhou, Hangzhou, Zhengzhou, Lanzhou, and Harbin, Ma and colleagues (2011) found that the ratio of nuclear families, along with the ratio of unmarried single individual, inclines significantly from 1983 to 2008 (Table 10.1). The survey conducted by Chunhua Ma et al. (2011) was further supported by the findings of Liu (2000), who carried out follow-up surveys on households in five cities that are all regional economic centers in China (Beijing, Tianjin, Shanghai, Nanjing, and Chengdu). In 1982, 1993, and 1997, the household type that was present in the highest ratio (at least 50% among all household types in all five of these cities) was the nuclear family household. Correspondingly, aside from nuclear family Table 10.1

Household structures in five cities in China

Household category

2008(%)

1993(%)

1983(%)

Unmarried single individual Married couple Nuclear family Stem household Joint family Children living with grandparents Unmarried cohabiting couple Other

10.40 20.00 50.20 13.90 0.20 2.70 0.80 1.70

1.78 12.07 54.34 25.28 2.19 2.17 – 1.73

2.44 66.41 24.29 2.30 – – 4.56 –

Source Ma et al. (2011)

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households, stem households held the second-highest ratio (between 15 and 32%). In Shanghai in 1997, for example, nuclear families held the highest ratio of 71.88%. The second most common household type was stem households, which held a ratio of 19.63%, followed by emptynester households, at 4.88%. The other household types covered in the survey were unmarried single individuals, childless couples, joint families, households in which children live with grandparents, and “other” household types, which held ratios of 0.38, 1.5, 0.63, 0.88, and 0.25%, respectively. The changes taking place in household structure were not only demonstrated by the rising ratio of nuclear family households, also reflected in the changes that took place in household scale. On the whole, Chinese households have been continuously shrinking in size. According to related statistics, in the early 1970s, the average household had 4.74 members. This number shrank down to 4.43 in 1982, 3.97 in 1990, and 3.36 in 2004. These numbers reflect the average size of each household in China at the time of household registration. Some scholars have found that the primary reason for this household shrinkage was the one-child policy implemented by the Chinese government. Further evidence of this claim is provided by China’s 2000 census: at that time, 25% of households only had one child, vastly different from the traditional households of the past as well as pre-reform households in modern China.

Internal Factor: Changes in Household Relationships The changes that have been taking place in household relationships can be analyzed from two aspects: vertically and horizontally. Vertical relationship refers to the family connections across generations. There are several features characterizing the changes in vertical relationship in Chinese family household. To begin, due to the shrinkage of household size and the rise of nuclear families, the number of family generations involved in each family household became smaller. Also, because of the weakening of monetary legacy passed down from

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elder generations and as better education among the younger population, households became more democratic, shifting away from the authoritarian structure of the past. Additionally, in “traditional” family household the intergeneration relationships were fair unidirectional as parents had absolute decisionmaking power over their children, and parents were responsible for nurturing the younger generation and admonishing them when they misbehaved. However, in the new era due to the shrinking of family size and the rise of nuclear families, the interaction between parents and children become more equal and inclusive. Although still deeply caring about their child’s education, employment, and selection of a spouse, parents have much less say in family matters compared to the situation in the traditional households of the past. Survey results from 7000 elderly people in nine large cities in China show that their ability to play a decisive role in “household spending,” “resolving big problems,” “marriage of sons/daughters,” and “education and job choices of sons/daughters” is 54.1, 43, 12.2, and 11.2%, respectively (Guan 2010). It is evident that the ability of parents to make decisions in regards to their children’s marriage, education, and career path has weakened significantly compared to the past. Nowadays, these choices are largely made by the younger generation themselves instead of their parents. In family household, horizontal relationship refers to family relationships in the same generation. In a traditional family household, intergenerational relationships especially the father–son relationship was given higher priorities compared to horizontal relationships (e.g., husband– wife relationship, sibling relationship, etc.). Gender roles and the alongside husband–wife relationship were generally defined by concepts such as “men outside, women inside” and “men farm, women weave.” The meanings of these phrases were that men earned material and nonmaterial compensation by working outside of the home, while women generally put more of their time and effort into taking care of the next generation of the family. Unavoidably, the compensation that women received from society as well as their social status was impacted significantly by gender differences. In a traditional Chinese household, most

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women made sacrifices for the good of the household and in the process took on a weaker role. In post-reform China, however, the vertical relationships which had once been a defining feature of Chinese households have become less important. In comparison, more emphases have been given to horizontal ties revolving around the husband and wife. Accompanying the socioeconomic development in China also the gender equity movement, women in the new China enjoy a more equal status and more space for personal development. As the focus of household relationships switching from vertical to horizontal, a particularly noticeable change is the improvement of the status of women in the household. For example, in terms of gender roles in the household, the willingness of both the husband and the wife to do chores, the equal division of household finances, and the shared management of household affairs all indicate the rising status of women. In 1995, the Renmin University Women’s Research Center conducted a survey on which family members are responsible for housework (Ma et al. 2011). According to this study, in 1993 households in which the husband was primarily responsible for chores made up a very small ratio. In terms of individual chores, in 45.4% of households, the wife was primarily responsible for cooking, while in 11% of households the husband was responsible. The statistics for cleaning were 18.45 and 6.67%, respectively; for taking care of the elderly, the ratios were 32.85 and 5.35%, respectively; and for educating children, the ratios were 19.15 and 10.15%, respectively (Ke and Guo 2003). By 2008, however, it had already become very common for husbands and wives to share responsibility for chores. The distribution of housework between husbands and wives in the year 2008 is listed in Table 10.2.

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Table 10.2

Housework between Husband and Wife, China

Who is responsible for housework

Who is the head of the household

Husband is primarily responsible Husband contributes more Husband and wife are more or less equal Wife contributes more Wife is primarily responsible Other members of the household are responsible Maid or cleaner is responsible Total Husband Wife Husband and wife are equal Grandparents Children Total

2008(%)

1993(%)

4.60

8.16

5.10 26.80

23.60

28.50 32.10

68.24

2.50

–

0.50

–

100 19.77 18.99 60.57

100 20.43 30.68 44.11

0.58 0.09 100

3.47 1.30 100

Source Ma et al. (2011)

Unforeseen Challenges for Chinese Family Households In the thirty or so years following the 1978 reform, China’s society and economy have undergone immense changes. At the same time, Chinese households were in a state of intense transformation. On one hand, it has been observed that the economic function of households had been recovering even strengthening. On the other hand, functions such as rearing children and caring for the elderly began to weaken to various extents. The structure of Chinese households became more diverse, and family lineage and joint households began to dissolve. The ratio of nuclear families sharply increased, and other household structures such as single parents, empty nesters, and unmarried cohabitating couples became less

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of a rarity. Meanwhile, the size of Chinese households was continuously shrinking. Under the shock generated by modernization, one after another, large family lineage and joint households split apart. Family households in Wenzhou, Zhejiang Province are an excellent example. People from Wenzhou are famous for their foreseeing and risktaking in business ventures. On the other hand, in order to better capture business opportunities, families from Wenzhou often chose to scatter far and wide, making it even difficult for family members to reconvene. Indeed, Chinese households had promising prospects also uncertain futures. With this in mind, one can’t help but ask the question: in China, are households still the cells of society? A businessman from Wenzhou who was working in the Aksu region of Xinjiang Province mailed a letter to CZ Bank magazine staff, revealing how difficult his line of work is, and the letter was published in the August 2010 issue of the magazine. In the letter, he described his drifting “nomadic” lifestyle and spoke of how his family had been split apart due to years of doing business in far-off regions. It was difficult for him to see his wife, making it so that even as he enjoyed the fruits of his labor as a businessman, he was unable to feel truly happy in the slightest, and called himself “stupid.” CZ Bank magazine used the title “Are People From Wenzhou Really Stupid?” challenging the group of people that are often praised as being China’s most shrewd and hardworking businessmen. The frustrations of this Wenzhou businessman were resonated among various other Wenzhou natives who were working in other regions. It was clear that the fast-paced economic growth that came as a result of the reform indeed come at a heavy price: the psychological burden stemming from the splitting of the family households endured by countless common people, every moment of every day. Data indicates that given Wenzhou’s total population of over 7 million, more than 2.3 million spend most of their time doing business in other regions. Wenzhou people are not just doing business in China, but scattered all over the globe—90% of the countries in the world have businessmen from Wenzhou. In pursuit of business interests, countless people from Wenzhou are unable to enjoy the happiness that comes from raising a normal family. The case described below and the accompanying diagram explain the reality of this issue.

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The father of Xueling Qi (pseudonym; all other names referenced in this example are also pseudonyms), Yongjie Qi, moved from Wenzhou to Wuqiao County, where his wife gave birth to Xueling. In 1986, Yongjie moved to Wuwei, Gansu. When Xueling was 13, he moved back to Wenzhou on his own. Even up until now, this family has been unable to reunite: Yongjie is still in Wuwei and Xueling’s older brother opened a shoe store in northeastern China five years ago. The wife of Xueling’s older brother, as well as Xueling himself, are still in Wenzhou. Xueling’s younger brother, Guangda, started up a clothing materials business in Guangdong. For another notable case of “scattered” Wenzhou family comes to the Cais. There are a total of nine children in the Cai family, three of whom are boys. The eldest brother, Xiuming Cai, has three children: his oldest daughter and second daughter went to university in Shanghai and Hangzhou, respectively. His third child is a boy, named Songtao. The middle brother of the Cai family, Xiuneng, has one son and one daughter, while the youngest brother, Xiutong, has three daughters and one son. All three of the Cai brothers are businessmen: Xiuming works in Pingliang, Gansu; Xiuneng works in Guyuan, Ningxia; and Xiutong works in Qingyang, Gansu. Each year, one of the men goes home to visit family—the annual visits are conducted on a rotating basis. The three Cai brothers also have five cousins on their father’s side of the family, all of whom are also doing business in western China. From a young age, the children of the three brothers of the Cai family also went with their fathers to the west to live and attend school. The only exception was Xiutong’s two daughters, who live with their paternal grandparents in their hometown. They are now first-year students at Sanhe Junior High, Wenzhou (Fig 10.1). In reality, it is not only businessmen from Wenzhou whose families split and scattered. Countless rural laborers also spend most of their time in far-off regions and struggle to reunite with their families. This has caused a variety of societal issues. According to estimates, there are over 200 million rural laborers living in urban areas. A report published on Xinhuanet on May 13, 2008, stated that China has over 58 million “left behind children” who are living in their rural hometowns while their

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Fig. 10.1 “Are People from Wenzhou really Stupid?” Migration of Businesspersons From Wenzhou

parents work in cities and towns. In households where parents spend most of the year working far away from home, it is difficult for family members to reunite, and children are unable to enjoy their parents’ affection or receive a proper in-home education. These “left behind children” are missing the most fundamental building blocks in the family system that are needed for healthy development. According to a survey by conducted by the Beijing Normal University Institute of Social Development and Public Policy, in 55.3% of cases, both parents of “left behind children” are working in other regions or provinces. In 44.7% of cases, one parent is at home while the other works

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elsewhere. 37.98% of “left behind children” live with their grandparents. The report also found that 60% of teachers believe that the children of parents who work as laborers in other cities and provinces tend to be moody. This report shared an extreme case in which a 12-year-old child hung himself after saying farewell to his grandfather. From the suicide note he left, it was clear that he was deeply saddened each time his parents left home to work in other regions. It was this repeated emotional trauma that drove him to commit suicide.

The Return of Family in Society Social and economic development has spawned an increasing number of social organizations such as schools, hospitals, and welfare institutions. Many of the functions of traditional Chinese households began to be “outsourced” due to the emergence of these social organizations. Many social activities, as well as significant portions of people’s social lives, began to shift away from the household and were taken over by corresponding social institutions. The establishment of schools partially replaces the education function of household, and social welfare institutions reduced people’s dependence on households to care for the elderly. As society became more closely knit, closeness within other family members continuously declined. Indeed, the rapid development of society and the economy dramatically increased people’s level of interaction with other members of society. Social networking broke through kin boundaries and geographic boundaries, and business relationships began to expand further outward. At the same time, people’s social lives began to center more on social activities as opposed to household life. People’s lifestyle became more easily influenced by mass media, and their life goals and their feelings of success and personal value were acquired from social activities instead of the household. Additionally, once production became separate from household life, people spent most of their time at their workplace. Entertainment venues also popped up in unprecedented numbers: parks, movie theatres, tea houses, and various other places became the central location for people to relax and enjoy themselves outside of the eight-hour workday.

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Furthermore, throughout the country’s modernization, people’s social status no longer depended on their households or ancestors. Indeed, although households still serve as the “starting line,” factors such as one’s education, career, and income become more important in determining people’s social status. In fact, it can be argued that the methods in which household influenced social status became more indirect, and often through the education and other knowledge- or relational- resources that the family is able to provide to family members. There are two possible ways to explain the changing status of family household in contemporary China. To begin, as the society and the economy evolves, the social status of households was already in a changing state. The changes that took place in the functions, structure, and relationships of Chinese households are simply the reflections of the changes that took place in the society. Another possibility is that the intrinsic characteristics of households did not undergo any changes, and households remain the cells of society. Nevertheless, some aspects of household life evolved to adapt to the changes taking place in the society. The letter written to CZ Bank Magazine by a Wenzhou businessman was the result of an individual’s contemplation of their relationship with their household and career. The reconstruction of ancestral halls and genealogies by people from Wenzhou is also powerful evidence. Most of the people who did so were entrepreneurs who hoped to use their newfound and hard-earned wealth to become well-known in their hometowns and become the pride of their families. Their reconnection with their ancestral line helped to revitalize family ideals and bring back traditional Chinese culture. Aside from blood relations, family lineages gained a new link between members: economic ties. According to Feng (2005), in the 300 years following the seventeenth century, Chinese society has undergone dramatic changes. Indeed, this time period has been China’s era of modernization. Family lineages have experienced an intense shock throughout the country’s societal transformation. During the Qing Dynasty, family lineages were a much livelier and more flourishing component of society. Committed proponents of family lineages aimed to realize the ideals of “respecting one’s ancestors, honoring the patriarchal line, and taking care of fellow family lineage

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members.” They united their fellow lineage members, achieved lineage self-management, created close ties with the government, and became loyal societal groups. In the first half of the 1900s, family lineages were battered by public criticism and the repeated blows delivered by the overbearing government and the chaos of warfare. In the first 30 years of the second half of the 1900s, family lineages were seen as dissident forces by the government, and were attacked yet again. In the late 1970s, family lineages or households made a certain degree of recovery. Faced with the transformations taking place in society, as well as their own bitter experiences, family developed the ability to adapt. The adaptions of family system in the new era seem to be guided by two directions. The family system either becomes a relatively small network surrounding some powerful family members such as the case in countless family entrepreneurs after the 1978 reform. Or the family system might become a community of individuals with the same group of ancestors. As for what fate awaits Chinese households, we can only wait and see.

Rise of Family Business in Contemporary China: A Case of Mao Family Before starting the story of Mr. Lixiang Mao and his family enterprise which represents a classic case of family enterprises in mainland China, we will first introduce his household background.

Family Background Lixiang Mao’s father, Changming Mao, was born in Huangsha Lake Village, Lishan Township, Yuyao County, Zhejiang Province to a family who had been making a living off of running small businesses for generations. Huangsha Lake Village was once a desolate and uninhabited ridge, then the Mao family moved there between the end of the Yuan Dynasty and the beginning of the Ming Dynasty and continued to live there for twenty generations (a total of over 600 years). Every fall, the lineage

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members would meet and collect sticks and branches from the mountain to use as kindling. They would bring the excess wood to the village and trade it for salt and other everyday necessities. The mountainous territory was mostly unsuitable for farming, so the family grew mulberries on the hillsides and raised fish and shrimp in the lake, relying on the environment around them for sustenance. Only after the establishment of China PRC did people with other surnames move into this land, which was once only inhabited by members of the Mao family lineage. Changming Mao was the sixth of seven children. Economic decline coincided with the chaos of the warlord conflicts of the late Qing and early Ming dynasties, and at the age of 30, Changming left his family and headed over a hundred kilometres away to work as an apprentice at a candy and preserves store called “Qi Xiang Ju” in Ningbo. He signed a contract with the head of the shop, in which he agreed to not return home for three years. During those three years, he was responsible for boiling water, serving food, keeping watch over the door, and doing various other miscellaneous tasks for the shop. He slept on the floorboards and was a hardworking and studious apprentice. He could even calculate with his left hand while writing with his right. Upon the completion of his apprenticeship, he worked as a shop helper for an additional year. He then worked as a clerk and bookkeeper in various shops such as Sanyang Nan Huo Hao, Gengji Straw Hat Shop, and Fangchangji Firm. Because of his speedy calculation skills and his beautiful penmanship, people began to call him Xiansheng3 Mao. While working as an accountant at Fangchangji Firm, with the assistance of his parents, 24-year-old Changming Mao successfully asked for Heqing Zhang’s hand in marriage. They had two sons, Lirong and Likai Mao, as well as a daughter, Liying. In the first and second year of Changming’s marriage, his father and mother passed away of illness. In 1938, his wife, Heqing, died suddenly of typhoid fever, leaving behind three children, ages 3, 5, and 7. Changming Mao moved from Huangsha Lake Village to Changhe Town, the hometown of his elderly father-in-law, to help take care of him while working in Changhe. In 1940, Changming 3 “Xianshgeng”

in the Confucian culture is often used as a title to refer to professionals or persons of authority.

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married Ya’e Sun, a woman ten years younger than him. Ya’e not only took on the burden of caring for Changming’s three preexisting children, but also had three additional sons with him: Lixiang, Limei, and Lijun Mao. Leading up to and following the war, the Philippines—the source of the golden straw used to weave straw hats—closed itself off to the rest of the world, forcing the Changhe Straw Hat Shop to shut down. Changming traded his long-sleeved business attire for farmer’s clothes and headed out into the fields. After the war, his older brother arranged for him and his oldest son, Lirong—15 years old at the time—to go to Shanghai to make a living. Lirong worked as an accountant in a cosmetics factory, then in a corduroy factory, and he even rented a storefront and sold fruit. However, the civil war devalued currency and caused costs of goods to skyrocket. Shanghai in itself became a battlefield. In such tumultuous economic conditions, Changming headed back home to the countryside, leaving Lirong in Shanghai working as an apprentice in a factory. Following China’s land reform, Changming Mao’s family received a two-room tile house. The days of drifting between different rental rooms were over. Back in Changhe Town, Changming Mao’s jobless state persisted. He had no income, and was entirely dependent on his wife, Ya’e Sun, who, in addition to raising five children, spent her days stitching and her nights weaving straw hats and cloth. After Changming’s second son, Likai, grew up and joined the army, the status of the Mao family became a military family. Changming was assigned to serve as the primary accountant and business executive (which also encompassed the task of being a salesman) at the Si Men Rong Welfare Factory set up by the county civil affairs system. In the early stages of the factory, the main focus was weaving colorful blankets out of hand-woven dyed yarn. However, Changming struggled to sell this product. He traveled to Shanghai to sell the factory’s blankets, where he lived in a bathhouse and survived on a diet of street noodles. Through the help of his oldest son Lirong who was already settled in Shanghai, he was finally able to connect with a supply and marketing cooperative who—at a price of 5.99 apiece—became the first client to buy a batch of the welfare factory’s products.

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In 1961, the factory struggled to maintain capital turnover as their canvas products were faced with another sales rut. Changming handed his accounting work over to a colleague and left on another long sales trip to Hebei, thousands of kilometres away. His hosts in Hebei were very enthusiastic and hospitable. According to local customs, a business cooperation between the two parties should be discussed over a few drinks. Changming, however, refused to drink the entire time, yet still managed to negotiate a business deal and successfully found a buyer for the hard-to-sell canvas. The welfare factory’s production efficiency was gradually improving, gaining an increasing extent of recognition. Friends and relatives attempted to get jobs in the factory through Changming, but he was a stickler for rules and principles and refused to hire people based on personal relationships. The factory was located very far away from Changming’s hometown, and as the head of accounting and as well as the person in charge of keeping stock of materials, he was the first to show up to work in the morning and the last to leave at night. He lived in the factory, and aside from leaving himself a little bit of money for basic needs, he sent most of his earnings back home. Changming, who had spent the first half of his life in hardship and strife, spent twenty years in the welfare factory—at the age of 71, he was finally forced to formally retire and leave the factory due to a fracture he sustained from taking a bad fall. He spent his retired life living with his son Lixiang’s family, with a radio and an alarm clock within reach at all times.

Lixiang Mao’s Childhood Lixiang Mao was born in November of 1941, making him the fourth of Changming’s children. He recalls how his hardworking mother gave him not only his life, but also a diligent and optimistic attitude in life. His father worked away from home and had an unstable salary, so his mother took on some part-time work as a tailor, weaver, and embroiderer to earn some extra money. At times, she would stay up all night making clothes

Fig. 10.2

The Mao family tree

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for her clients, one stitch at a time. Lixiang grew up in the 1940s. His childhood was full of hunger and fear, and his youth was defined by the absence of brothers to mutually rely upon. Lixiang remembers that on one summer’s night, while playing soldiers and robbers with a group of friends, he collided with another boy while running around in the darkness. The collision gave him a huge bump on his head, while the other boy ended up rolling on the ground crying from his injury and had to get 12 stitches. The Mao family had to give the injured boy’s family 150 pounds of millet to pay for medical fees and additional compensation—this was the equivalent of nearly one year’s worth of Lixiang’s father’s income at the welfare factory. The next day, first thing in the morning, Lixiang’s mother went out and got help from four different family friends—only then were they able to compile enough millet to satisfy the compensation demands. After returning home, Lixiang’s mother beat him, then when crying she said: “in the future, you’ve got to work hard and bring honor to our family.” Lixing Mao never forgot those words (Fig 10.2).

Township Enterprise Lixiang Mao started out as a salesman for a social enterprise, then later on in the 1980s, he established his own township enterprise. And for over 20 years of his life, he spent almost every day traveling around the country, doing everything he could think of to negotiate deals and seek out buyers. In the factories of the time, sales dictated production. In 1979, on a train from Shanghai to Beijing, when chatting with the stranger beside him, Lixiang Mao who was working as a salesman at the time discovered that his seatmate was a buyer for the Wuxi Radio Factory. The buyer had just returned from Shanghai Xingjie Radio Factory, where he had acquired the contact springs that his factory urgently needed to manufacture tuners for televisions. Seeing how elated his seatmate was after purchasing 500,000 contact springs, Lixiang Mao sensed an opportunity for business and came up with a plan. After engaging in a friendly conversation with his seatmate, he gave the man two boxes of cigarettes in exchange for 10 contact springs.

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Lixiang had originally planned to travel to Beijing, but got off early at Wuxi instead and took a night train back to Shanghai to confirm that this product was indeed in short supply. First thing in the morning, he arrived at Shanghai Xingji Radio Factory’s Supply and Marketing Department, pretending to be a buyer. Then, he visited Shanghai Jinling Radio Factory, where he pulled out one of the contact springs that he had traded cigarettes to his seatmate for and claimed that it was manufactured by his own factory. Jinling Radio Factory was very interested and wanted to buy as many contact springs as the factory had, regardless of whether it was a government-owned or township enterprise. This was the Chinese economy at the time: government-owned enterprises were unable to satisfy all of the needs of the marketplace, therefore providing hardworking grassroots enterprises with endless business opportunities. Lixiang Mao headed back to his enterprise in Cixi and immediately arranged for the production of contact springs. The factory overcame technical and material barriers and successfully completed a round of trial production. They then went on to mass-produce contact springs at a lower cost, and very quickly, their township enterprise monopolized the market for contact springs and the talented entrepreneur Lixiang Mao became well-known in the region. In 1985, township enterprises began to implement management appointment system through which capable individuals with good management skills were selected to be in charge. A social class of township entrepreneur was gradually formed in society. Lixiang Mao established his first startup, Ninth Cixi Radio Factory, dedicated to producing contact springs. From the start, this factory was dubbed as a “red hat” (a word used to refer to state-owned or collective-owned enterprises) enterprise, despite the fact that the local government had not actually contributed financially to its establishment from the very beginning. In the two years following the factory’s establishment, the government implemented a series of sweeping and overbearing regulations. Township enterprises were suddenly plunged into difficult conditions, and for eight months straight, the factory was unable to provide wages to its workers. Not even a full year after the factory’s establishment, the deputy factory director and eight technicians who Lixiang trusted and relied upon left.

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Lixiang’s failed startup cast a dark shadow over his life and over the entire Mao family. Lixiang’s wife, Zhaodi Zhang, had once been the deputy director of technology at a knitwear mill. The knitwear mill’s business was booming, and Zhaodi received a high salary. However, in order to support her husband’s startup, she resigned and became the deputy director of Ninth Cixi Radio Factory, where she was responsible for managing production. All of a sudden, husband and wife both had no salary. Lixiang Mao, whose entire family’s lives now depended on his startup enterprise, went out and searched everywhere for business opportunities.

Feixiang Group In China’s planned economy, the government decided what and how much would be produced by state-owned enterprises. Production, supply, and sales were all determined by the government’s plans, and township enterprises struggled to participate in this newly created economic structure. Lixiang Mao figured out a product that state-run enterprises were unwilling to produce and that was not within the state’s production plans: igniters for traditional coal gas stoves. He studied the technology, hired workers, and sought out sales channels. That year, he received 200,000 yuan in investment funds and also received the Zhejiang Golden Eagle Award for Famous and Special New Products. This award was a huge accomplishment and encouragement for small township enterprises such as the Ninth Radio Factory, which was virtually unheard at that moment. The limited domestic market restrained the full potential of the enterprise’s growth. At the time, private enterprises were still exploring the possibility of the opening of foreign market. Firstly, at that moment private enterprises were unable to acquire the eligibility of exporting products. They had to first turn their products over to a state-owned trading company, which deeply cut into their profits. Secondly, they knew little about the foreign market. In those years even the Canton Fair

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(i.e., China Import and Export Fair)—which was supposedly an exhibition for the exchange of business information—was closed off to private enterprises. In 1989, Lixiang Mao, who had over a decade of experience as a traveling salesman, secretly attended the Canton Fair. His first deal came from a Mandarin-speaking Chinese businessman living in Malaysia. Foreign clients originally thought that only Korea and Taiwan could manufacture igniters. Through their communications with Lixiang, they found that mainland China also produced them at a cheaper price. Lixiang returned from the Canton Fair with 80,000 USD worth in orders for ignitors.

Succession in Family Enterprise In 1994, igniter manufacturer Feixiang Group—which had been number one in the world for igniter sales for six consecutive years—was struck with a heavy financial blow. The previous year, the market price for igniters was $1.20 apiece, while this year at the Canton Fair it was announced a market price of 30 cents apiece. The dramatic price cut caused massive losses for Lixiang’s business. Desperate for a solution, Lixiang traveled around seeking out new markets, aiming to switch to a new product. During that time, China’s goliath economy was being tightly regulated. Township enterprises faced various issues both internally and externally. Exhausted and battered, Lixiang thought of his son, who excelled in his science and engineering studies. He had confidence in his son’s open-minded, hardworking, and result-orientated nature. The cooperation and mutual trust between father and son was yet another indicator of the many advantages held by family enterprises. At that time, Lixiang Mao’s extroverted daughter and her husband left behind their “iron rice bowl” (another word for an extremely stable job) at a hospital and bank to join in on the ignitor business. Lixiang’s wife, the deputy director of technology at the factory, helped prepare and manage the new factory.

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Lixiang’s son, Zhongqun Mao, was working on his Master of Engineering at Shanghai Jiaotong University and was in the midst of preparing to go to the United States to get a Ph.D. Ever since middle school, Zhongqun excelled in his studies and was very interested in academia. Many of his classmates in graduate school pursued doctoral studies in other countries. At the time, it had never even occurred to him that he would end up finding a job back in the tiny hometown Cixi. He came home for a month for winter break, and during that time, he witnessed the pressure that the family enterprise was facing and learned about the struggles that his father had encountered while running the family enterprise. Zhongqun felt his responsibility as the oldest son to step up and help take the lead. In his final semester, in between working on his thesis, Zhongqun returned to Cixi and helped out on the production lines of his father’s factory. Alongside his father, he went to the bank and sought out clients. He listened and learned as much as possible. He understood the potential of the family enterprise’s products, and finally, during a deep conversation with his parents, he formally agreed to return home after graduating, then for the first year, he would hold the position of deputy general manager at Feixiang Group.

Zhongqun Mao’s “Corporate Entrepreneurship” and Fotile Group Zhongqun was not a family business successor who simply followed the path of the elder generation. Zhongqun believed that the factory needed to shift away from producing igniters. The new focus of production should be determined only after a thorough survey of market needs. He also made three clear requests to his father. Firstly, the company must leave Changhe Town. Secondly, the company will take very few of its original workers. And thirdly, highly important decisions were to be made by Zhongqun himself. Zhongqun conducted a thorough market investigation, analyzed his findings, and communicated multiple times with his parents. In final, he and his parents decided to develop a

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new enterprise manufacturing stove range hoods, and the new enterprise eventually grew into the market-leading “Fotile Group” nowadays. At that time, the market for stove range hoods already had products from top-of-the-line foreign brands such as Seimens as well as the three strong domestic competitors: Shuaikang, Yuli, and Laoban. Aside from these leading brands, there were an additional 250 companies of varying sizes. Despite the fact that this was already a relatively established industrial sector, Zhongqun believed that these products were not close enough to the actual needs of Chinese consumers. The domestic enterprises of the time were all mimicking foreign products. there were no kitchen appliances that were designed specifically for Chinese cooking, which revolves around pan frying, oil frying, and sautéeing all of which generate significant amounts of oily smoke. According to Zhongqun, if Fotile could produce a range hood that met the special needs of Chinese cooking, it would be extremely wellreceived in the consumer market. The success of Fotile Group approved that Zhongqun was right. Through over a decade of hard work, Fotile has become a well-known Chinese brand worth over 5 billion yuan with over 2.2 billion yuan in annual sales. In terms of the division of ownership among family members, Lixiang Mao proposed the “pocket theory.” The boundaries of each pocket must be clearly defined to prevent disputes between family members. In Lixiang’s eyes, he and his wife as well as their only son, Zhongqun, were a single united pocket. Once their daughter married and had her own family, the Mao family was composed of two separate pockets. Lixiang’s daughter was a shareholder of the family enterprise, but should not participate in operation and should not hold any top manager position. Lixiang, his wife, and his son formed a complete pocket and held the majority of the Fotile Group’s equity. An additional 6% of shares were held by a high-level manager who worked in Fotile Group since the beginning of the business. In 2001, while Lixiang was still the chair of the board, his wife Zhaodi resigned from her original roles as deputy chair of the board, deputy general manager, and union president, giving these roles up to other employees so she could focus on helping the company’s development in other ways.

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In 2002, chair of the board Lixiang Mao resigned and no longer involved himself in operation-related decisions. He proposed that when siblings separate into two different pockets, if both parties are capable of and willing to operate independently, it is possible to split the business into two separate enterprises. Also, according to Lixiang’s pocket theory, when some family members create their own startups, this should seen as a good thing for the family business group. However, there must be some safety measures in place: If the new venture fails, it is generally inappropriate for the family member to return to the old family enterprise, otherwise the boundary between “pockets” might become blurred which may negatively impact the normal operation of the enterprise. Currently, although Lixiang Mao is still the chairman of the board and his wife, Zhaodi Zhang, is the chair of the board of supervisors, the two are not directly involved in Fotile’s daily management, such that the presence of multiple “centers of power” can be prevented. In the words of Lixiang himself: “We persist in family ownership, but dilute the family-centered management by bringing in managers and employees from outside. Dilution of family management tears us away from the warmth of family and friends, and brings in a set of cold rules and regulations. Nevertheless, doing so might tear apart family relationships and mitigate family unity. That is the reason that we also need to prevent triggering household conflicts, and some compensation methods must be used to settle complaints among family members. One must be careful in the timing of this dilution, and when the appropriate opportunity arises, grab ahold of it. Traditional Chinese culture has a saying about the various members of a family being the equivalent of different branches of a tree: Siblings should all follow their own paths and develop their own careers. This greatly frees the production capabilities of the enterprise.” Aside from Lixiang Mao and his son, who hold the positions of chair of the board and president, respectively, there are no family members in upper management positions in the Fotile Group. All of these positions have been filled by talented professionals who were hired from the outside. The Mao family has maintained the family’s ownership and control of Fotile Group, but diluted the family’s influence in daily management.

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Although Lixiang Mao only had two children, one son and one daughter, he still used the “pocket theory” to clearly divide their ownership. Note this method is quite different from those used by Chinese family enterprises in Hong Kong, Taiwan, and Southeast Asia, which we will discuss in Volume 2.

References Fei, H. T., Fei, X., Hamilton, G. G., & Zheng, W. (1992). From the Soil: The Foundations of Chinese Society. University of California Press. Feng, E. (2005). Modern Shift of Chinese Family since 18th Century. Shanghai: Shanghai People Press. Fukuyama, F. (1996). Trust: Human Nature and the Reconstitution of Social Order. New York, NY: Simon and Schuster. Goodlad, J. I. (1984). A Place Called School: Prospects for the Future. New York, NY: McGraw-Hill Book Company. Guan, Y. (2010). New directions of inter-generational family relations since Open-up and Reform (in Chinese). Study & Exploration, 1, 110–113. Huang, Y. (2008). Capitalism with Chinese Characteristics: Entrepreneurship and the State. Cambridge: Cambridge University Press. Ke, L., & Guo, X. (2003). The Impact of the Reform and Opening up of the Family Structure. Zhengzhou: University of Zhengzhou Press. Liu, B. (2000). Studies on the changing structure of urban family in modern China (in Chinese). Sociological Studies, 6 , 31–37. Ma, C., Shi, J. Li, Y., Wang, Z., & Tang, S. (2011). Family change in urban areas of China: Main trends and latest findings (in Chinese). Sociological Studies, 2, 182–216. Redding, G. (1990). The Spirit of Chinese Capitalism: In the Spirit of Chinese Capitalism. New York, NY: De Gruyter. Shi, J. (2000). The City in Late Imperial China (in Chinese). Beijing: Zhonghua Book Company. Zhu, Q. (1998). The family networks and development of rural private enterprises (in Chinese). Sociology Research, 1, 63–75.

11 Conclusion

Built upon a theoretical angle combining sociology, history, also crosscultural perspectives, this book volume intends elaborate three issues that are unique to family business and business family in modern China. The first issue is the common features shared by Chinese families, with regard of their basic structure, governing principals, pattern of wealth inheritance, as well as the relationship between family and central government. Note that family household is the basic economic, political, and cultural unit in China. In fact, the family is often placed at the core of people’s social lives. Admittedly, there is an emerging trend in China to criticize family business, saying that family governance cannot match the increasing demand for efficient organizing. Nevertheless, it is still our belief that although the family system and family governance have been undergoing dramatic changes in recent years, the focus on family lives remains unchanged among Chinese people, and family business remains the most basic yet important form of organizations in China. In addition, we intend to illustrate the historical development behind family household, business family, and family business in China. In this book, we largely focus on modern China, starting from 1800s which marked the fall of the Qing dynasty, till the twenty-first century when © The Author(s) 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5_11

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the economic reform in modern China had been stabilized. Note that Chinese business families have experienced dramatic changes which were largely reflections of reforms happening in Chinese society in recent 200 years. Thus, studying the historical development of family businesses and business families in China might contribute to a better understanding of the overall Chinese society given such a turbulent period. Finally, in Volume 2 we will further explain the challenges that Chinese family firms are experiencing nowadays. Nevertheless, Volume 1 provides a theoretical explanation such that we are able to link emerging challenges with unique features in Chinese families. Indeed, for modern business families in China, they often struggle to maintain the growth of the business, as the family might not have sufficient resources—both financial and human ones—that can be deployed in business activities. In addition, different from western business families who have more experience in facilitating family business succession, family firms in China were all newly born after the 1978 Open-up and Reform. Indeed, the first generation of entrepreneurs who started the business after 1978 have reached the age such that they need to carefully plan for transgenerational business succession. Furthermore, family business in China might be particularly vulnerable when the pressure of market competition increases. Thus, business families need to be more inclusive by hiring more nonfamily professionals, especially given the rising importance of innovation ad internationalization in the business world. Lastly, in China it is often said that “you cannot be rich for more than three generations.” It is our sincere hope that this book can shed lights on important issues puzzling business families.

Index

A

C

Adopted son 47, 55, 57 Ancestor worship 18, 30, 32, 33, 38, 39, 42, 43, 47, 48, 67, 146 Ancestral hall/shrine/temple 33, 41, 42, 67, 94, 162

Changes in household functions 146 Chaxu Gejuf 19, 21 Concubine 25, 47, 52, 68, 74 Confucian culture/value/norm 2, 3, 7, 9, 18, 19, 21, 22, 25, 41, 43, 56, 57, 134, 164 Continuum of Descent 22, 32, 38, 48 Council of Elders 39 Culture 6, 7, 9, 11, 18, 27, 32–34, 37, 47, 60, 67, 107, 133, 134, 138, 151, 162, 174

B

Baker, H.D. 22, 30, 32, 38, 40, 41, 43, 46, 53 Bergère, M.C. 72, 87, 104, 122, 124 Biological connection/relationship 18 Book of Rites 26 Brother-brother relationship 103 Business family 3, 7, 9–11, 23, 27, 31, 53, 54, 56, 59, 60, 103, 119, 121, 129, 177, 178 Business Network 149

D

Diversified Family Structure 151 Dominium 49 Dong Lai Shun restaurant 54

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 L. Chen et al., Family Business in China, Volume 1, Palgrave Macmillan Asian Business Series, https://doi.org/10.1007/978-3-030-51395-5

179

180

Index

E

G

Eastman, L.E. 17, 30, 38, 39, 46, 47

Gender equality 67, 68

F

H

Family as a basic social unit 18 Family as a model for the state 10, 37, 57–59 Family boundary 20, 57, 174 Family business/firm/enterprise 1–3, 6, 7, 9–11, 23, 27, 31, 52–57, 66, 76, 79, 81–83, 85–89, 91, 96, 101–104, 107, 109, 115–122, 124–131, 134, 137, 141, 149, 163, 171–175, 177, 178 Family business succession 129, 178 Family education 33, 33 Family entrepreneur 58, 101, 103, 163 Family genealogy 39, 41, 42 Family household 21, 32, 54, 133, 134, 137, 140–142, 146–149, 153–155, 158, 162, 177 Family system 3–10, 17–18, 21–24, 29, 33, 37, 38, 48, 51, 57, 58, 60, 65, 134, 141, 160, 163, 177 Father-son relationship 155 Fei Yue 27 Fenjia 50 Feudal China 42, 65 Fictive kinship 18, 40, 41, 101 Filial piety 24, 33, 34, 43, 48, 57, 94, 95 Five generation under one roof 21 Fotile Group 173, 174

Historical perspective 7, 9 History 3, 4, 22, 29, 38, 42, 44, 55, 67, 69, 86, 93, 96, 100, 115, 120, 129, 138, 152, 177 Hong dingzi 101 Household division 28, 38–40, 50–54, 56, 58–60, 121 Household network 149, 150 Husband–wife relationship 47, 155 I

Immigration 11, 128, 138 Industrialization 5, 6, 66, 67, 72–74, 82, 83, 96, 124, 129, 141–143, 146 Institution 4, 41, 72, 87, 94, 115, 120, 122, 133, 144, 145, 149, 153, 161 Institutional system 9 K

Kinship 4, 20, 21, 33, 41 L

Land attachment 30 Lang, L.H. 1 Lang, O. 17, 26 Levy Jr, M.J. 10, 29, 30, 38, 40, 41, 47, 48 Liang, Shuming 37, 60 Lineage/clan school 10, 21, 23, 30, 33, 34, 38–43, 51, 58–60,

Index

65–69, 73–76, 79, 82, 84, 91, 93–96, 101, 110–112, 146, 158, 162, 163 Lineage leadership 38, 39 Lineage property 38, 39, 41

181

People’s Republic of China (PRC) 10, 65, 66, 127, 135, 141, 164 Petty Capitalism 30, 58 Primogeniture 38, 56 Principles of household division 54 Production team 134, 135, 137, 138

M

Manus 49 Marriage 4, 5, 17, 18, 20, 25, 40, 47, 66, 68, 69, 103, 122, 142–145, 153, 155, 164 Ming Dynasty 55, 67, 75, 163 Mother-son relationship 23

Q

N

R

Nine grades of relations 21 Nuclear family 21, 22, 40, 51, 56, 66, 146, 148, 151, 153, 154, 157

Reciprocal/reciprocity 9, 40 Role differentiation 4, 17, 38, 48 Rong brothers 105, 107–112, 115–122, 125 Rong family of Wuxi 74

Qian family 43, 44 Qing Dynasty 10, 37, 42, 54, 55, 67, 68, 71, 73, 76, 83, 84, 94, 99, 100, 102, 115, 122, 129, 162

O

Obedience 24, 27, 48–50, 57, 58 Obligation 18, 24, 147 One-Child Policy 7, 144, 154 Open-up and Reform 2, 66, 133, 137, 178

S

Self-sufficiency 29, 30 Seven Grounds for Divorce 25 Sociological perspectives 3 Sociology 3–7, 38, 59, 177 Song Dynasty 27, 30, 51, 65, 139

P

Patria potestas 50 Patriarchy 10, 23, 25, 37, 47–50, 59, 60 Patrimonialism 10, 37, 48, 49, 57, 59 People’s Commune 134, 137, 146, 147

T

The Cao family 90, 91 The Mao family 137, 164, 165, 168, 173, 174 Theoretical framework 3, 7 The Republic of China 95, 96 The Sixteen Maxims 94

182

Index

Tong Ren Tang drugstore 55, 56 Township enterprise 150, 168–171 Traditional authority 49 Twenty-Four Examples of Filial Piety 33 Two Cycles 81

U

Urbanization 6, 67, 74, 141–143, 146 Uxorilocal marriage 47

W

Wealth inheritance 38, 40, 50, 58, 59, 177 Weber, Max 48 Wu-Lun (Five Human Relationships) 22

X

Xiaotong Fei 19, 152 Xinhai Revolution 68, 81, 95

Z

Ziji-Ren 20