Continuity and Pragmatism: How Chinese State-Owned Banks Adapted to Hong Kong’s Free Market (1949–1978)

One of the puzzling features of China’s post-1978 economic reforms is how quickly its enterprises adapted to the new business environment. An insight into this puzzle is provided by Chinese state-owned banks in Hong Kong. From 1949–78 these banks, led by the Bank of China, represented China’s primary financial interface with the outside world. What distinguished the management of these banks from their peers was their loyalty to communist values. Yet, despite Mao Zedong’s anti-imperialist anti-capitalist ideology, the Bank of China demonstrated extraordinary business pragmatism in its engagement with the international financial system. It also exemplified a high level of management continuity which enabled it to see beyond a volatile and often hostile political environment. The article shows that the post-1978 retreat from ideology and its replacement with commercial incentives proved costly in terms of professional standards. A homogenisation of bank management also made it more difficult to recruit senior management whose loyalty to the Communist Party could be assumed. These findings highlight the importance of rule variation in explaining international differences in management behaviour. More generally the article shows the long-term importance of Hong Kong’s role as an internationalising force for China’s business and financial sectors.