Forms of Chinese Interest

This section examines the distinctive forms of interest in China by tracing how usury, commerce, landholding, and modern banking interacted historically and under modern capitalist penetration. It begins by defining interest as repayment above principal and contrasts European restrictions on interest—often condemned on religious grounds and frequently counterproductive—with the Chinese case, where usury was widely tolerated in practice, partly because scholar-official elites could simultaneously be landowners and lenders. It then argues that usury capital in China was structurally intertwined with land capital and commercial capital, and that high rural interest rates served as an implicit indicator of commercial profit and land-rent conditions. With modernization, these relationships did not disappear: rural usury persisted and intensified amid bankruptcies and the drain of funds toward cities, while a more formal financial sector expanded largely to serve interest-dependent groups rather than industrial expansion. The section identifies three coexisting interest benchmarks—foreign banks (about 4–8%), Chinese banks and money shops (about 9–20%), and traditional rural usury (about 24–300%)—and shows that their wide dispersion, combined with limited capital mobility, prevents a normal equalization of interest rates and thereby obstructs industrial development. It concludes by highlighting how policy and institutional constraints link these benchmarks into an unstable chain that exacerbates rural financial depletion and high interest rates.