You can't keep a good Chinese capitalist down

A Chinese bank's bid for a stake in Bear-Stearns has roots that go back to the dawn of modern China.

Published October 16, 2007 4:41PM (EDT)

In 1896, two brothers, Rong Zongjing and Rong Desheng, founded a bank in Shanghai. Over the next several decades they steadily expanded their commercial interests, first into silk manufacturing via a network of cocoon-handling firms, and later into industrial flour and cotton production.

The Japanese takeover of Shanghai was bad for business. Rong Zongjing fled to Hong Kong, where he died in 1938. But younger brother Rong Desheng, "the Rockefeller of China," remained in China, along with his son Rong Yiren, not only through the Japanese occupation, but much more significantly, even after the Chinese Communist takeover.

Rong Yiren took over the family business in the late 1940s, but in 1956 gave up control of his conglomerate to the Communist Party, although he continued to keep a hand in the business, and served in a number of political posts. More tough times were to come during the Cultural Revolution, but after Deng Xiaoping solidified power, Rong -- now known as the "Red Capitalist" -- was back in the game. With Deng's support, he founded the China International Trust and Investment Co., a financial conglomerate that was one of the first significant vehicles for channeling foreign investment into China. Rong died in 2005, but his son, Rong Zhijian, runs a Citic subsidiary based in Hong Kong and is one of China's richest billionaires.

The financial press was abuzz Tuesday morning with the news that Citic had made a bid for a minority stake in the investment bank Bear-Stearns, most recently famous for its leading role as the canary in the credit-crunch coal mine. So far, there seems to be a shortage of grumbling about a state-controlled Chinese company sniffing around a major U.S. financial institution. Oil companies are off limits, but Wall Street? Have at it.

Even if Citic fails in its bid, the history of the Rong family lends itself to some fascinating historical resonances. When the Rong brothers were building up their operations in the 1920s and '30s, China was awash in foreign imports. Flour exporters based on the West Coast of the U.S. dominated the Chinese domestic market, creating tensions in China remarkably analogous to contemporary American qualms about Chinese imports. A cartoon in a Chinese journal published in 1934 shows Chinese industry drowning in a sea of foreign goods, with survival hopes represented by a life preserver labeled "national products."

One historian, Susan Strasser, argues that the success of the Rong brothers represented not just China's ability to home-grow its own capitalist "cotton tycoons and flour kings," but its prospects for rolling back the colonialist tide.

Entrepreneurs ... were seen as underdogs who had to simultaneously create their industries in an economically backward country and overcome nearly overwhelming odds by trying to compete against the companies of the imperialist countries. The victories of these Chinese industrialists, therefore, were not simply cast as triumphs of technology and industry over the previous limits of commodity production. Their successes represented victories of China over imperialism.

Family ties that go back a century, national ambitions forged in an era of powerlessness before mighty foreign interests, the birth of capitalism in China; scratch a headline in the Wall Street Journal about a seemingly routine bid by a Chinese bank to get a piece of the action on the Street, and it's all right there.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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