Chapter 669: Great Profiteers, Great Creditors

At the Rice Market Teahouse beside the rice market on Hanzheng Street, the place was as lively as a boiling pot today, voices roaring. That morning, with Wu Sangui assuming the post of Governor-General of Sichuan-Shaanxi and Wang Yongji assuming the post of Governor of Shaanxi, the trading prices of the first-phase Pingxi fief bonds and the first-phase Shuofang fief bonds began to stop falling and rebound.

A little later, word spread of a "tremendous piece of good news": the Pingxi Army and the Shuofang Army were going to issue second-phase fief bonds to raise five million taels of silver (three million for the Pingxi Army, two million for the Shuofang Army) for the campaign into Sichuan, and the Great Ming court would, before the end of the first year of Hongxing, provide each of the two fiefs with five hundred thousand taels of silver for preparations for the Sichuan campaign. At once, the first-phase Pingxi fief bonds and the first-phase Shuofang fief bonds soared.

The reason the bonds soared was of course not simply that good news had appeared. The real reason was that two great merchant groups, centered around the Maritime Merchants Bank and the Salt Merchants Bank, were manipulating the bond market!

Because the "commendation system" (fraudulent registration and commendation of property) had been dismantled by Zhu Cilang — the commendation system had concentrated land and industrial-commercial property rights in the hands of the bureaucratic gentry, severely obstructing the development of capitalism in the southeast — industry, commerce, and the rich-peasant economy of the Ming southeast had developed at a rapid pace over these past few years.

The fastest-growing among them were the Huizhou financial clique, rooted in the Salt Merchants Bank and the Yangzhou Huizhou salt merchants' guild, and the Quanzhou merchant financial clique, rooted in the Zheng family of Anping and the Maritime Merchants Bank, which stood upon the southeast's maritime trade.

These two great merchant groups had already been highly successful before Zhu Cilang dismantled the commendation system, and had accumulated enormous wealth — which is to say, vast amounts of cash lying idle on their books with nowhere to spend it, so it could only be used to buy land and collect rent.

According to the view universally accepted in later ages, these Chinese profiteers did not put the money they earned back into production but instead used it to purchase land, and that was why capitalism could not develop. It was the Chinese love of buying land that prevented capitalism from developing!

But the Great Emperor Zhu, whose soul came from a later age, knew that even in twenty-first-century China, a capitalist who took his spare cash and blindly invested it or blindly expanded production often ended up worse off than a "country moneybags" who bought houses and collected rent. Those who borrowed a mountain of usurious debt and ended up on the blacklist as deadbeats were all the ones who blindly tried to grow big. After all, in all his years in Shanghai's financial circles, he had never heard of anyone becoming a deadbeat from buying property on the Shanghai Bund.

And in the seventeenth century, capitalism was still in its infancy; the age of large-scale industry had not yet arrived, so there were not so many money-burning projects to absorb the capital of the Quanzhou and Huizhou merchant financial cliques.

What they needed most now was a market where they could make sound financial investments — bank deposits (this was an age of precious-metal currency with relatively tight money, and the peak of the price revolution had passed, so deposit rates were fairly high and profitable), government bonds, urban real estate, and farmland all met the requirements of the Quanzhou and Huizhou merchant cliques.

Emperor Zhu understood the minds of these "country moneybags" very well, so he guided matters according to circumstances: he opened banks, developed the bond market, and built new industrial and commercial cities, in order to absorb the surplus capital of the "country moneybags."

With more investment channels available, the great magnates' capital would no longer swarm into the farmland market to compete for land with capitalists who could actually run farms.

And a "sound" bond market could not do without a certain amount of speculative trading — if no one speculated, trading would shrink drastically, and when trading shrank, liquidity would be poor. Without liquidity, bond yields would inevitably rise, and military governorships like the Pingxi Army and the Shuofang Army simply could not bear excessively high interest rates.

Therefore, before the first-phase Pingxi fief bonds and the first-phase Shuofang fief bonds were even listed, the groundwork for speculative trading had in fact already begun.

This was because the redemption terms of these two fief bonds contained enormous uncertainty — the principal could be redeemed only upon the abolition of the fiefs!

Moreover, this "redemption upon abolition of the fiefs" was backed by a "full, irrevocable guarantee commitment" issued by the Great Ming court in the form of an imperial edict. Given Zhu Cilang's credibility and the current financial condition of the Great Ming court, this "full, irrevocable guarantee commitment" was entirely believable.

So the repayment of principal on the two fief bonds was guaranteed; the only question was when it would be repaid.

While the principal was guaranteed but without a fixed term, the coupon rates on the two fief bonds were too low — only six percent per annum.

That rate would have been quite decent in a later age, but in the seventeenth century it would not do. The seventeenth century was the age of precious-metal currency: there were no nuclear-powered money-printing presses, not even steam-powered money-printing presses, not even hand-cranked money-printing presses!

So the "capital market" was a seller's market, and interest rates were high all over the world. Ten percent was a very conscientious rate; a capital cost of six percent was practically a gift!

With interest rates so low, it was certain that the two fief bonds would fall below par the moment they listed!

And how far they fell was determined by the level of "expectations of fief abolition."

If the two military governorships were about to be abolished, then the bond's "price including interest" could very well exceed par value.

If the two military governorships would not be abolished for another hundred years, then the bond price would collapse disastrously!

So the terms of these two fief bond issues were designed to be utterly treacherous. Those two bankers, Huang Jiang and Su Sheng, were truly too cunning. In the histories to come, the two of them would be shameless great profiteers!

"Up, up, up again! The listed price posted next door at the Maritime Merchants Bank has already reached sixty taels!"

"Sixty taels! Yesterday it was only forty! It's gone up by half in a single day!"

"It's going to keep rising! How could it not? The court established the two fiefs precisely to attack the roving bandits in Sichuan. Once Sichuan is taken, the fiefs will surely be abolished!"

"Abolish the fiefs once Sichuan is taken? Is that reliable news?"

"How could it not be reliable? Didn't you see what the Capital Gazette said? Wu Sangui has become Governor-General of Sichuan-Shaanxi, and Wang Yongji has become Governor of Shaanxi. Once Sichuan is taken, Wu Sangui is certain to enter Sichuan, and the elite troops of both fiefs will go in with him. If the fiefs aren't abolished, would they enfeoff Sichuan to the two fiefs as well?"

"How could that be possible? How could the court allow the two fiefs to keep growing? And with the land of Sichuan in hand, how would the soldiers of the two fiefs be willing to go back to Shaanxi and endure poverty?"

"But Sichuan won't be easy to take, will it?"

"Why wouldn't it be easy? Three columns advance at once: the Pingxi and Shuofang fiefs move south from Shaanxi, the court's main army advances west from Huguang, and the Sichuan troops who retreated to Guizhou strike north again. The roving bandits will be attacked from three sides — isn't that a dead end for them?"

"Right, right, a dead end!"

"Then the fief bonds have to rise more — buy more!"

"Quick, quick, quick! Go buy!"

After they had chattered for a while, another batch of Huguang country moneybags, their minds now stirred, rushed out clutching large-denomination silver notes issued by the Salt Merchants and Maritime Merchants Banks. A while later, those who had bought bonds would probably come back beaming with delight.

Watching them rush out, Yao Daqiao, who had been sitting in the teahouse all morning, could finally hold back no longer!

"No, I have to buy some more!" Yao Daqiao muttered, and strode out of the teahouse.

He had in fact already bought quite a few fief bonds, purchasing them during the recent period when the fief bonds had been falling. He had spent five thousand taels of silver to buy 102 Pingxi fief bonds (each with a face value of one hundred taels).

Right after he bought them, they had fallen quite a bit, losing nearly one thousand taels within a few days. It had pained Manager Yao so much he could have died, and he had very nearly cut his position and gotten out.

When he came to the teahouse this morning, he had brought the 102 bond certificates with him, intending to sell them once they rebounded a little.

But he had never imagined the bonds would rise so ferociously. Now he had not only recovered his losses but had made a profit of one thousand taels of silver!

And judging by the market, they were going to keep rising!

After a moment's calculation, Yao Daqiao decided to add to his position. He had money on hand! He had sold a batch of autumn grain to rice merchants from Jiangnan, and he had over three hundred thousand taels of ready silver on hand — though not all of it was his, since he still owed his suppliers over two hundred thousand taels in payment for goods. But that account did not need to be settled immediately; it would be fine to clear it before the end of the year.

So Yao Daqiao could use that two hundred-odd thousand taels to earn a bit of interest — that is, deposit it in the two big banks or some other fairly reliable money shop and collect a few months' interest.

But now he had changed his mind. He was going to play for high stakes! Buy fief bonds with everything, and make a killing.

(End of Chapter)