Village Life in China: A Study in Sociology

by Arthur H. Smith

XIV

COÖPERATIVE LOAN SOCIETIES

Among the most characteristic examples of Chinese capacity for combination, are Loan Societies, which seem everywhere to abound. The object of these organizations is the same as that of similar associations elsewhere, but it may be doubted whether the Chinese methods of procedure are not unique. As in everything else Chinese, with a general similarity, there is such divergence in detail, that it is sometimes very difficult for natives of one district, even to comprehend the rules of the Loan Societies of other and perhaps adjoining counties.

The reasons for the extensive organization of these societies, are those to which attention has been repeatedly called. Every Chinese has constant occasion to use money in sums which it is very difficult for him to command. The rate of interest is always so high, that a man who is compelled to borrow a considerable amount, upon which he must pay interest at two and a half, three, or even four per cent. a month, will not improbably be swamped by the endeavour to keep up with his creditors, a fact of which everyday experience furnishes countless examples. By distributing the payments over a long period, and by the introduction of an element of friendship into a merely commercial transaction, the Chinese is able to achieve the happy result of uniting business with pleasure. Of the measure of success attained we may be better able to judge, after an examination of the processes pursued.

The simplest of the many plans by which mutual loans are effected, is the contribution of a definite sum by each of the members of the society in rotation to some other one of their number. When all the rest have paid their assessment to the last man on the list, each one will have received back all that he put in and no more. The association is called in some places the “Club of the Seven Worthies” (Ch‘i hsien hui). The technical name for any association of the kind in which coöperation is most conspicuous, is Shê. The man who is in need of money (Shê-chu) invites certain of his friends to coöperate with him, and in turn to invite some of their friends to do the same. When the requisite number has been secured, the members (Shê-yu), assemble and fix the order in which each shall have the use of the common fund. This would probably be decided by lot. Unless the amount in question is a very trifling one, every meeting of the members for business purposes will be accompanied with a feast attended by all the partners, and paid for either by the one for whose benefit the association was organized, or by the person whose turn it is to use the common fund.

At the first feast, given by the organizer of the association, each of the members attends provided with the sum agreed upon, let us suppose 10,000 cash, which is paid over to the headman, 60,000 cash in all, to be used by him, for a certain fixed period, say a year. The next year, the feast is given by the person who drew the second lot; the headman puts 10,000 cash into the treasury, and each of five other members the same sum, all of which is paid over to number three, who in like manner employs it for a year, when in the same way the fourth takes his turn. At the end of six years each of the seven members will have had a turn, each will have received 60,000 cash without interest, and each will have paid out 60,000 cash for which he has likewise received no interest. Each one will have been accommodated with the handling of a larger sum than he could have otherwise obtained, at the end each one has lost nothing in money, but has had six more or less excellent feasts, a matter from a Chinese point of view of some practical importance, however lightly it might be esteemed by a Westerner.

It would seem that the simple form of coöperative borrowing here described, is by no means so common as some of the various societies in which interest is paid, and it is not perhaps surprising that this should be the case. The Chinese are so much in the habit of paying an extortionate sum for the use of the money of others, that it doubtless appears to the average borrower that if he has exacted a high interest, he has made a better bargain than if he had received no interest at all, although he must eventually pay out just as much interest as he receives, and is demonstrably no better off at the final payment than if he had borrowed and lent, disregarding interest altogether.

The methods of societies which exact interest for loans, differ greatly in every detail, and there is evidently no limit to the variations which local custom may adopt in any particular district. In some regions the ordinary number of members appears to be sixteen as in the case just supposed. In others, the number rises to thirty or even more. Sometimes the meetings are held annually, in other districts the usual rule is semiannual meetings, in the second and eighth moons. In societies where the rate of interest is fixed, the only thing to be decided by lot, or by throwing dice, will be the order in which the members draw out the common fund. This may not improbably be determined at the first meeting, each member taking his turn in accordance with the excellence or otherwise of his throws with the dice. But if, as often happens, the interest is left open to competition, this competition may take place by a kind of auction, each one announcing orally what he is willing to pay for the use of the capital for one term, the highest bidder taking the precedence, but no member ever has a second turn. If the oral method of competition is not used, a still better plan may be adopted. This consists of prepared slips, like ballots, noting an offer of interest, deposited by each member in a box, the highest bidder getting the precedence, and in case of like amounts offered by different bidders a second ballot to decide who will add the most to his previous offer. It is easy to see that in this way, the interest to be paid might not be the same for any two loans, in which case there would seem to be inevitable some complexity in the accounts. But for the most part, the Chinese appear to take involved computations of this nature with surprising facility, especially considering the limited practice in mathematics which most of them have enjoyed.

For the sake of greater simplicity, we will take a case in which the interest for each period is assumed to be one-fifth of the principal, in which the number of members is ten, besides the organizer of the society, and in which the amount loaned by each member is 10,000 cash. It is also assumed that in this case the headman for whose benefit the lending was begun, does not repay the loan in money, but only in spreading at each meeting a feast of specially good quality. The interest is of the nature of a “bank discount,” and is therefore collected in advance, the only certain way, it may be remarked, to collect it at all. Each man, it will be observed, with the exception of the first, actually receives only 8,000 cash, but repays to each one who follows him in drawing, a full 10,000. The result will be best seen in a tabulated form, as follows: