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Banking on the Confucian Clan: Why China Developed Financial Markets so Late

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  • Zhiwu Chen
  • Chicheng Ma
  • Andrew J Sinclair

Abstract

Over the past millennium, China has relied on the Confucian clan to achieve interpersonal cooperation, focusing on kinship and neglecting the development of impersonal institutions needed for external finance. In this paper, we test the hypothesis that the Confucian clan and financial markets are competing substitutes. Using the large cross-regional variation in the adoption of modern banks, we find that regions with historically stronger Confucian clans established significantly fewer modern banks in the four decades following the founding of China's first modern bank in 1897. Our evidence also shows that the clan continues to limit China's financial development today.

Suggested Citation

  • Zhiwu Chen & Chicheng Ma & Andrew J Sinclair, 2022. "Banking on the Confucian Clan: Why China Developed Financial Markets so Late," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1378-1413.
    • Handle: RePEc:oup:econjl:v:132:y:2022:i:644:p:1378-1413.
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    6. Kebin Deng & Zhong Ding & Xu Liu, 2023. "Clan loyalty and COVID‐19 diffusion: Evidence from China," Health Economics, John Wiley & Sons, Ltd., vol. 32(4), pages 910-938, April.
    7. Chen, Zhiwu & Lin, Zhan & Zhang, Xiaoming, 2024. "Hedging desperation: How kinship networks reduced cannibalism in historical China," Journal of Comparative Economics, Elsevier, vol. 52(2), pages 361-382.
    8. Xie, Dongshui & Bai, Caiquan & Zhang, Yuwei, 2023. "Relation-based governance, financial crisis shock, and economic growth in China," Economic Modelling, Elsevier, vol. 129(C).
    9. Kairui Cao & Weijie Jiang & Laiqun Jin & Yuanyuan Zhu, 2024. "Does Confucian culture reduce firms' pollution emissions," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 1838-1852, May.
    10. Wenge Zhu, 2024. "Market or clan: A comparative study of risk sharing institutional evolution in China and Europe," International Studies of Economics, John Wiley & Sons, vol. 19(2), pages 293-327, June.
    11. Wang, Xiangnan & She, Kexin & Bian, Wenlong, 2024. "Clan culture and participation in FinTech-based risk sharing," Pacific-Basin Finance Journal, Elsevier, vol. 83(C).
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