This study examines early twentieth-century Chinese legal reform of partner’s liability towards external creditors and the reaction of Shanghai Chinese businessmen to such reforms. Drawing from legal cases, commercial contracts, diplomatic archives, and mass media reports, I provide a case study of how a transplanted, supposedly more efficient, ‘global’ Western commercial legal rule came into conflict with ‘local’ business practice in Shanghai. Starting from the 1910s, in order to increase the credibility of partnership and to protect foreign creditors, lawmakers in the late Qing, Beiyang, and Nanjing Governments tried to introduce the new legal norm that every partner was fully liable for all the debts owed by a partnership. This had not been the case in the Qing law and prevai...[ Read more ]

This study examines early twentieth-century Chinese legal reform of partner’s liability towards external creditors and the reaction of Shanghai Chinese businessmen to such reforms. Drawing from legal cases, commercial contracts, diplomatic archives, and mass media reports, I provide a case study of how a transplanted, supposedly more efficient, ‘global’ Western commercial legal rule came into conflict with ‘local’ business practice in Shanghai. Starting from the 1910s, in order to increase the credibility of partnership and to protect foreign creditors, lawmakers in the late Qing, Beiyang, and Nanjing Governments tried to introduce the new legal norm that every partner was fully liable for all the debts owed by a partnership. This had not been the case in the Qing law and prevailing commercial custom in China whereby each partner should only pay for his own share of debt. In Shanghai, although some creditors readily adopted the new liability provisions to claim debt, local merchant organizations continuously petitioned to revise the new rule so that it could be aligned with the long-standing commercial custom. In their petitions, Chinese businessmen complained that the transplanted liability greatly increased the risk of their investment, and tried to persuade lawmakers that their custom were more beneficial for business development. Examining the pre-existing institutional arrangement devised by early twentieth-century Chinese investors, I argue that their objection can be explained by economic calculation, and according to this economic logic, the transplanted partnership liability could damage their indigenous way of risk management.