Keeping China Out of the War: German Bankers, Political Risk and the First World War in China

Abstract

Before 1914, China became an important market for multinational banks. Operating in China’s treaty ports, their business included the financing of China’s foreign trade and the provision of loans to the Chinese government. One of the leading multinational banks in China was the German Deutsch-Asiatische Bank (DAB). Before the war, the DAB enjoyed good relations with other foreign bankers and the Chinese government and had managed to steadily develop its business thanks to the rapid growth of Chinese foreign trade and the increasing reliance of China on foreign loans. However, the First World War ended this steady development. Now, the DAB faced the threat that China might enter the war on the side of the Allies and liquidate the bank as an enemy business. This paper traces the measures taken by German bankers in China to deal with this threat and keep China out of the war. I show how German bankers tried to use their existing relationships with Chinese politicians and the provision of financial support to the Chinese government to persuade China to remain neutral. I also demonstrate how these efforts eventually failed when the Allies outbid the German financial offers and enticed China to join the Allies. This paper thus analyses the hitherto understudied strategies of German businesses during the period of Chinese neutrality to manage the political risk of China entering the war. More broadly, it highlights the limitations of the ability of multinationals in China and elsewhere to limit their exposure to political risk.