Online Appendix MaterialThe Effects of World War I on the Chinese Textile Industry: Was the World’s Trouble

China’s Opportunity?

Cong LiuA. The Assignment of Transportation Speeds

During the examined period, the great majority of commodity in China was transported by train,

by river, or by road. The transportation network in this paper consists of all three types of

transportation modes. While the routes, based on records in the China Historical Geographic

Information System (CHGIS) or existing railroad lines, can be fairly precisely constructed, the

assignment of transportation speeds requires more assumptions and can only be approximate. This

limit is because, under China’s diverse location conditions, the actual transportation speed might

have varied greatly across regions. In addition, administrative records on transportation speeds or

transportation costs that cover each individual county are not available.

In this paper, I assign a flat speed within each type of transportation mode, based on

collected examples from various sources. I do not use a flat rate because the actual transportation

cost was often affected by factors other than speed, such as the type of commodities carried and

the local price level, which adds additional uncertainties to transportation cost across different

regions. Without precise records on other relevant information, assigning a flat rate for each type

of transportation modes would likely aggravate the issue of measurement errors.

For waterways, the speeds varied even within the same route, as the downstream speed

was always greater than the upstream speed. Based on collected literates’ travel diaries, Peng

(2015) summarizes that the daily upriver speeds were about 25 km and downriver speeds were

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about 15 km in the eighteenth century. The introduction of steamship greatly increased the travel

speeds of rivers to 250 km per day. Therefore, I assign the daily river speed as 150 km in this

paper. As a comparison, in India, the daily speeds of downriver, upriver, and steamships were

about 65 km, 15 km, and 100 km around the late nineteenth century.1

The normal roads include major roads and small roads. The major roads usually had

better quality and maintained by the government in the Imperial China, for which I use postal

roads in the fifteenth century from the CHGIS as a proxy. In the eighteenth century, the

transportation speed on postal roads could reach up to 300 km per day by horse, but this is an

extreme case that only applied to transferring emergency official messages. The small roads in this

paper are constructed by connecting counties that are not covered by the transportation network

using direct lines. Based on multiple travel diaries in the eighteenth century, Peng (2015)

concludes that the average speeds on land were about 40 to 50 km. Given that the speeds should

be slightly greater in the 1910s, I assign the daily speeds of major roads with 75 km and small

roads with 40 km.

For railroads, the actual length and construction time of each segment of railroad are

reported by Ma et al. (1983). The records of the speeds, however, are scarce and nonsystematic.

One possible reason is that the speeds of railroads varied and often deviated from their designed

value, especially when facing disasters or conflicts. Appendix Table A lists two examples of the

railroad speeds.

Considering the speeds recorded in these examples, I use 50 km per hour (or 1200 km per

day) in this paper as the assigned average speed for the railroads. It is worth noting that this speed

is closer to the one that carried passengers rather than commodities. Railroad timetables in 1933

1 Naidu (1936), cited from Donaldson (2019).2

suggest that the fast trains ran close to or greater than 50 km per hour, while the slow rains that

carried both commodity and passengers ran close to 30 km per hour.2 I choose the one for

passenger transportation because the assigned speeds for other types of routes are mostly based on

passengers’ travel diaries rather than merchants’ records on commodity transportation. In addition,

the calculated transportation cost does not change much if the assigned speed of railroad is lower

to 30 km per hour, which was still much faster than through rivers or roads, and granted counties

close to railroads a clearly advantage in access to ports along the railroad line.

Comparisons with the records of Japan and India suggest that the speed of 50 km per hour

in 1914 is reasonable, not extremely high or low. In Japan, the short trip between Tokyo

(Shimbashi) and Yokohama was a commute of 30 km in 45 minutes around 1900.3 In India, trains

were capable of traveling up to 600 km per day from 1870 to 1930.4

B: Different Types of Banks

Financial institutions in early twentieth-century China include traditional banks, foreign banks,

and domestic modern banks. Traditional banks are native Chinese banks, originated to aid

commercial activities that required currency exchange and commercial loans. They were often

organized as family business and managed by people from the same hometown. In the late

nineteenth century, they started to provide business loans to the industrial sector. The first foreign

bank, a British bank, entered China soon after the country opened up, aiming to facilitate foreign

traders. In the 1850s, four other British banks opened in China. Banks from other countries, such

as France, Germany, Russia, America, and Japan successively established or opened branches in

2 The timetable information is composed by the Administration Bureau of Jiaoji Railroad (1934) in Jiaoji tielu lvxing zhinan (The Travel Guide of Jiaoji Railroad). It collects the timetable of Jiaoji railroad line as well as other connected major railroad lines. The length information is from Ma et al. (1983).3 Yamasaki (2017).4 Johnson (1963), cited from Donaldson (2018).

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China. In addition to normal businesses in deposits, the foreign banks had focused more on

assisting international transactions and large amounts of loans, such as those with the Chinese

government (Hong 2001). Domestic modern banks were the ones constructed under western

banking institutions but funded by Chinese entrepreneurs. They first appeared in 1897 and became

increasingly important during WWI (Du, 2002).

Historical records show that industrial firms borrowed from all three types of financial

institutions. For example, when Shenxin aimed to expand its business in 1917, it borrowed

300,000 yen from Japanese-owned Taiwan Bank for three months with an interest rate of 8

percent. Dasheng tended to borrow from domestic modern banks because these banks usually had

sufficient funds and offered lower interest rates (Gu 2015). The Dafeng textile company, a firm of

medium size, chose to raised money from traditional banks through the owner’s commercial

network (Brasó Broggi 2016).

Appendix Table A: Two Examples of Railroad Speeds

Origin Destination Length

(in km)

Time Source Calculated Speed

(in km per hour)

Reported

Year

Beijing Wuhan 1214.5 2-3 days Brandt, Ma and

Rawski (2014)

16.87 -25.3 1906

Shanghai Hangzhou 186.2 km 2 hours

(Fastest time)

Köll (2019), page 110. 83.1 1910

Source: The length information is from Ma et al. (1983).

Reference

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Brandt, Loren, Debin Ma, and Thomas G. Rawski. “From Divergence to Convergence:

Reevaluating the History behind China’s Economic Boom.” Journal of Economic

Literature 52, no. 1 (2014): 45–123.

Brasó Broggi, Carles. Trade and Technology Networks in the Chinese Textile Industry: Opening

Up before the Reform. Basingstoke: Palgrave Macmillan, 2016.

Donaldson, Dave. “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure.”

American Economic Review 108, no. 4–5 (2018): 899–934.

Du, Xuncheng. Zhongguo jinrong tongshi: Beiyang zhengfu shiqi (History of Finance in China:

The Warlord Era). Beijing: Zhongguo Jinrong Chubanshe, 2002.

Gu, Jirui. Dasheng fangzhi jituan dangan jingji fenxi (An Economic Analysis on Dasheng Textile

Group). Tianjin: Tianjin Guji Chubanshe, 2015.

Hong, Jiaguan. Zhongguo jinrong shi (History of Finance in China), 2nd Edition. Chengdu: Xinan

Caijing Daxue Chubanshe, 2001.

Johnson, J. The Economics of Indian Rail Transport. Bombay: Allied Publishers, 1963.

Köll, Elisabeth. Railroads and the Transformation of China. Cambridge: Harvard University

Press, 2019.

Ma, Liqian, Yizhi Lu, Kaiji Wang, Xuejun Wang. Zhongguo tielu biannian jianshi (A Brief and

Chronical History of Railroads in China). Beijing: Zhongguo Tiedao Chubanshe, 1983.

Naidu, Narayanaswami. Coastal Shipping in India. Madras: Madras Press, 1936.

Peng, Kaixiang. Cong jiaoyi dao shichang: chuantong zhongguo minjian jingji mailuo shitan

(From Transactions to Markets: Exploring Traditional Civil Chinese Economy). Hangzhou:

Zhejiang Daxue Chubanshe, 2015.

The Administration Bureau of Jiaoji Railroad. Jiaoji tielu lvxing zhinan (The Travel Guide of

Qingdao-Jinan Railroad). Qingdao: Wenhua Yinshuashe, 1934.

Yamasaki, Junichi. “Railroads, Technology Adoption, and Modern Economic Development:

Evidence from Japan.” ISER Discussion Paper No. 1000, Institute of Social and Economic

Research, Osaka University, Osaka, Japan, 2017.

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Appendix Table 1 Impact of WWI and Access to Trade on Capital Invested in the Textile Industry(1) (2) (3) (4) (5)

VARIABLES Log(Capital) Log(Capital) Log(Capital) Log(Capital) Log(Capital)

WWI 0.000749 (0.000831)PostWWI 0.00373** (0.00155)WWI × τ -0.00106 -0.00101

(0.00145) (0.00147)PostWWI × τ -0.00617** -0.00552** (0.00285) (0.00254)WWI × τ∈major ports -0.000274 -0.000208 (0.00153) (0.00154)PostWWI × τ∈major ports -0.00670** -0.00593*** (0.00264) (0.00210)Constant 0.00503*** 0.00525*** 0.00425** 0.00525*** 0.00425** (0.000616) (0.00178) (0.00179) (0.00179) (0.00180)

Observations 33,972 33,972 33,953 33,972 33,953R-squared 0.000 0.001 0.001 0.001 0.001Number ofcounties

1,789 1,789 1,788 1,789 1,788

County FE Y Y Y Y YYear FE N Y Y Y YExclude SH N N Y N Y

Notes: *** p < 0.01, ** p < 0.05, * p < 0.1. Standard errors, reported in parentheses, are clustered at the provincial level. The regression covers the period from 1907 to 1925. The dependent variables are the capital of textile firms in county i at time t (plus one and raised to the natural log form). The variable

price is the average value of yarn per piece at each port in natural log form. τ is constructed travel days from a county to its closest port (plus one and raised to the natural log form). τ to major ports

captures the travel days from a county to one of the six major ports in yarn trade (plus one and raised to the natural log form). These ports (from north to south) are Jiaozhou, Shanghai, Hankou, Chongqing, Guangzhou, and Mengzi. Source: Author’s calculations from Hsiao (1974).

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Appendix Table 2 Impact of Import Prices and Local Characteristics on the Number of Textile Firms

(1) (2) (3) (4)VARIABLES Log(# Firms) Log(# Firms) Log(# Firms) Log(# Firms)

τ in major portsprice × bank 0.0246*** 0.0156*** 0.0153*** 0.0140*** (0.00690) (0.00433) (0.00429) (0.00468)price × yanghang 0.0255 0.00388 0.00682 (0.0895) (0.167) (0.182)price× τ -0.00526** 0.00390 0.00397 0.00285 (0.00245) (0.00265) (0.00258) (0.00281)price× bank × τ -0.0203*** -0.0129*** -0.0126*** -0.00874** (0.00600) (0.00358) (0.00357) (0.00325)price×yanghang× τ -0.282 -0.253 -0.0619 (0.316) (0.393) (0.0965)

Observations 33,991 33,991 33,972 33,972R-squared 0.146 0.218 0.186 0.189Number of counties 1,789 1,789 1,788 1,788County FE Y Y Y YYear FE Y Y Y YControls N Y Y YExclude SH N N Y Y

Notes: *** p<0.01, ** p<0.05, * p<0.1. Standard errors, reported in parentheses, are clustered at the provincial level. The regression covers the period from 1907 to 1925. The dependent variables are the numbers of textile firms in county i at time t (plus one and raised to the natural log form). The variable price is the average value of yarn per piece at each port in natural log form. τ is constructed travel days from a county to its closest port (plus one and raised to the natural log form). τ to major ports captures the travel days from a county to one of the six major

ports in yarn trade (plus one and raised ot he natural log form). These ports (from north to south) are Jiaozhou, Shanghai, Hankou, Chongqing, Guangzhou, and Mengzi. The variable bank is the

bank capital of domestic modern banks in 1912 (plus one and raised to the natural log form). I also control for access to traditional banks, foreign banks, suitability for cotton production, concessions, and warfare at the county level. Source: Author’s calculations from Bureau of Agriculture and Commerce (1914), Hsiao (1974), CHGIS (2016), Huang (1995), Yan (2011, 2012), Guo (1990), and Jiang (2009).

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Appendix Table 3 The Impact of Access to Finance (Using Full Bank Sample, 1912-1921)

(1) (2) (3)VARIABLES Log(# Firms) Log(# Firms) Log(# Firms)

WWI× τ -0.000981* 0.000780 0.000758(0.000570) (0.000549) (0.000488)

PostWWI× τ -0.00309* 0.00261 0.00255(0.00179) (0.00208) (0.00201)

WWI×bank 0.00212 -0.000138 -0.0000765(0.00222) (0.00106) (0.00112)

PostWWI×bank 0.0136*** 0.00790** 0.00816**(0.00445) (0.00361) (0.00347)

WWI×bank× τ -0.00238 -0.000235 -0.000292(0.00197) (0.000742) (0.000794)

PostWWI×bank× τ -0.0166** -0.00977** -0.0101**(0.00747) (0.00455) (0.00460)

Observations 16,101 16,101 16,092R-squared 0.037 0.094 0.081Number of county 1,789 1,789 1,788County FE Y Y YYear FE Y Y YControls N Y YExclude SH N N Y

Notes: *** p<0.01, ** p<0.05, * p<0.1. Standard errors, reported in parentheses, are clustered at the provincial level. The regression covers the period from 1912 to 1921. The dependent variables are the numbers of textile firms in county i at timet (plus one and raised to the natural log form). WWI and

PostWWIare dummy variables. τ is constructed travel days from a county to its closest port (plus one and raised to the natural log form). The variable bank is bank capital in every year (plus one and raised to the natural log form). I also control for the distribution of foreign banks, traditional Chinese banks, the location of trading companies, suitability for cotton production, concession, and warfare that occurred in a county in a given year. Source: Author’s calculations from Bureau of Agriculture and Commerce (1914), CHGIS (2016), Huang (1995), Yan (2011, 2012), Guo (1990), and Jiang (2009).

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Appendix Figure 1 The Price of Cotton Yarn in Major PortsSource: Price is calculated from import value and quantity of “cotton yarn” from the Returns of Trade and Trade Reports (China Maritime Customs, various years).

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Appendix Figure 2 Suitability for Cotton ProductionSource: Food and Agriculture Organization. Global Agro-Ecological Zones v3.0. http://www.fao.org/nr/gaez/en/, 2012.

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Appendix Figure 3 Average Capital and Spindles at the Firm LevelSource: Nongshang tongji biao (Reports of Statistics on Agriculture and Commerce).

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Appendix Figure 4 Impact of Access to Banks on the Number of FirmsSource: Author’s calculations.

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