Chapter 76: Stocks and Bonds

The proposal to finance the Guangzhou project through stocks and bonds was approved by the Executive Committee. Cheng Dong himself was very supportive—a large number of finance professionals in the Ministry of Finance had been feeling unfulfilled and dejected due to the lack of professionally relevant work. With the Great World project, they could promote a stock market in the future and continuously draw capital from Guangzhou.

However, the Executive Committee was concerned about the potential loss of corporate control after implementing a joint-stock system. Although Da Bo Shipping and Runshitang Pharmaceuticals were both joint-stock companies open to natives, the private shares were sourced from “within the system”—naturalized citizens and collaborators. The Guangzhou Great World project, on the other hand, was a completely public offering. The sources of shareholders would be complex, and some worried that an open offering would lead to future conflicts of interest and hinder social reform.

“When we formally rule Guangdong, we will inevitably conduct a major purge of the existing gentry class, thoroughly eliminating them both physically and spiritually! This stock offering is essentially selling them a get-out-of-jail-free card,” Du Wen vehemently criticized at the meeting. “I find it strange that a system like ours, founded on a planned economy, would resort to such a crooked, capitalist path…”

Qian Shuiting banged his gavel. “Please keep your remarks on topic and avoid irrelevant content.”

Although Du Wen was generally not very popular in the Senate, her words struck a chord with many transmigrators. There were quite a few who believed they should not get too entangled with the vested interests of the Ming Dynasty.

In response, Chen Ce, the head of the policy department at Delong Bank, came forward to argue. In fact, he was not only the head of the bank’s policy department but also the head of the policy planning department for the entire Ministry of Finance.

“I would like to remind my fellow transmigrators that whether it’s a public offering or issuing corporate bonds, the essence is to ‘provide financial services for the development of the enterprise.’ I believe you all understand the meaning of my words,” Chen Ce said calmly. “Thinking of controlling the board of directors by buying stocks to ultimately gain control over a company’s operations? That kind of thing only happens in what Comrade Du calls the decadent capitalist countries. It didn’t happen in the old world, and it certainly won’t happen in this one. After all, we are the majority shareholders.”

Some transmigrators showed expressions of “sudden realization.” Others didn’t quite understand and waited for him to continue.

“Large enterprises and corporations don’t necessarily have to pay dividends,” Chen Ce began to speak more plainly. “Besides, we can set up a separate holding company to issue the stocks. What, did you never read the financial section in the old world?”

However, Chen Ce’s idea was not entirely feasible. Gaining returns through speculation would require a relatively standardized stock market, and the conditions for establishing one in Guangdong did not yet exist. The Planning Institute and the Ministry of Finance also did not approve of immediately promoting these modern financial instruments. The people of the Ming Dynasty had a concept of shares, but not the sophisticated idea of making money by buying and selling stocks. Their only concept of shareholding was receiving dividends when the business made a profit. It would be difficult for the Great World project to constantly claim it was running at a loss.

After repeated discussions, the gentlemen of the Wudaokou Tea House reached a consensus: for the time being, there would be no stock market. The Great World project could raise capital from the public and issue corporate bonds—with corporate bonds being the main source of funding.

To obtain the necessary working capital for construction as soon as possible, Guo Yi immediately took action after receiving formal approval. He discussed with Meng Xian how to practically implement this.

“Alright, first tell me how much money you need and how much you have now,” Meng Xian said, stroking his chin—his full beard had been shaved off long ago because it didn’t look like an upper-class person’s, but he still unconsciously retained the gesture.

“You know exactly how much money I have,” Guo Yi said with dissatisfaction. According to financial regulations, all of the Guangzhou Station’s funds were now deposited in an account at the Delong Guangzhou branch.

“It’s not the same. Although I know your accounts clearly, that’s the money of the entire Guangzhou Station, not the investment for the Great World project. You can’t mix them up.”

“The allocation Cheng Dong gave me is thirty-five thousand taels. That’s all the goods and personal compensation from the Guangdong side,” Guo Yi said in a low voice. “This money is now allocated to the Great World project group.”

But this money not only had to be used for the Great World project but also to pay for the various repair costs to reopen the Zi-brand shops. This would cost about ten thousand taels, leaving only a little over twenty thousand taels for the Great World project.

“Twenty thousand taels is not a small amount,” Meng Xian commented.

It wasn’t a small amount, but it wasn’t much considering the upcoming expenses. The Planning Institute had provided a rough estimate table. The entire Great World project, including the initial building materials projects, would cost about seventy to eighty thousand taels of silver to complete, including all equipment and personnel.

Meng Xian said, “Let’s plan for a hundred thousand taels. It’s better to raise a little more.”

With the Guangzhou Station’s business acumen, earning eighty thousand taels was not a major problem, but most of their income had to be used to pay for the large quantities of imported goods, which was already planned by the Planning Institute and could not be changed arbitrarily.

“I’ll form an underwriting syndicate,” Meng Xian said. “I’ll contact a few of the major local money houses to underwrite the sales. That way, you’ll get a hundred thousand taels immediately—no need to count small change every day waiting to scrape the money together.” He looked around. “Besides, selling stocks and bonds in a shop doesn’t look very professional.”

There were two types of securities to be issued. One was the stock of the Great World project, with each share valued at 0.72 taels of Kuping silver. The stock’s return was not guaranteed; dividends would be paid annually based on the performance and profits of the Guangzhou Great World project. If the business performed poorly, there would be no or small dividends. The other was the bonds of the Great World project, with each bond also valued at 0.72 taels of Kuping silver. The bonds had a three-year term with an annual interest rate of 2%, without compound interest. The principal and interest would be paid in one lump sum upon maturity.

All stocks and bonds were bearer instruments and could not be reported as lost. This essentially recognized that stocks and bonds could be privately transferred, paving the way for the future establishment of a stock and bond market—the European stock market had also started with private buying and selling in coffee houses.

Thus, led by the Guangzhou branch, they contacted six other major money houses in the city to underwrite the hundred thousand taels of stocks and bonds. Meng Xian was the first to subscribe for twenty thousand taels. The financial strength of the Zi-brand, the power of the Australians, and Meng Xian’s unhesitating subscription left the other money houses with no doubt, and they quickly underwrote the remaining amount.

The news of the Zi-brand raising capital through money houses immediately caused a huge sensation among the officials. Everyone knew that Master Guo’s businesses were raking in money day and night, and many people were desperate to deposit their private savings in the Zi-brand’s coffers. Now, there were actually shares to buy! Buying shares was like raising a goose that laid golden eggs! All the officials, high and low, were rubbing their hands together, counting the silver they had accumulated over years of service.

The officials were so enthusiastic, and the common people were not to be outdone. The gentry and wealthy households who had connections with the government and were well-informed also got the news. They sent people to the underwriting money houses to make arrangements in advance and reserve the number of shares they wanted to buy. However, Meng Xian was using a “scarcity marketing” strategy this time. He held tightly to the subscription certificates, only giving each underwriting house half the number of certificates for their underwriting amount. The rest would be sold publicly.

The obvious result was the immediate formation of a black market for subscription certificates. A certificate that could buy five hundred shares, which cost only one hundred wen for “handling fees” at the Delong Guangzhou branch, was sold on the black market for two hundred wen, then one qian, five qian, one tael, ten taels, and finally, even reached a price of fifty taels. To anyone, this price was insane.

“It seems greed and speculation are unavoidable in any time and place,” Meng Xian couldn’t help but remark when he heard that the subscription certificates were being wildly speculated on.

While the officials and wealthy households were so enthusiastic, the common people were not left behind. Each share and bond cost only 0.72 taels of silver, which was affordable for middle-class families. The common people of Guangzhou had witnessed the various wealth myths of the Zi-brand, and now that they had a chance to get a piece of the action, they were unwilling to miss out. They flocked to the money houses—even if it was just to buy five shares or ten bonds.

In just four or five days, the underwriting syndicate’s hundred thousand taels quota was completely sold out. In fact, if it weren’t for Meng Xian and Guo Yi’s intention to let the common people and middle-class families buy some of the securities, the local gentry and wealthy households alone could have bought up the entire quota.

“We could have easily underwritten two hundred thousand taels…” Zhang Yikun, the head of the Great World, couldn’t stop smiling. With the silver in hand, the project could be launched on a large scale.

“What’s the hurry? This city of Guangzhou is a black hole for silver. What’s two hundred thousand taels? Who knows how much silver is hidden in the corners of the old misers’ walls and under their floors. We need to find ways to dig up all their money and use it,” Meng Xian said. “This is just the first phase. We’ll issue a second, third, and fourth phase later and squeeze all the money out.”

Zhang Yikun nodded repeatedly. “That’s the best way. Keep selling continuously. It’s so satisfying to use other people’s money.” He thought for a moment and said, “We should sell more stocks and fewer bonds. The 2% annual interest on the bonds is unavoidable. As for the stocks, we can just say the business is not doing well and not pay dividends. It’s not like those shareholders can check our annual performance reports or anything.”

Meng Xian sneered, “The stock market is ruined by this kind of thinking. Do you think the shareholders are pigs, letting you slaughter them and bleed them dry while still wanting to come back for more? In my opinion, we have to pay some dividends for the first five or six years, to build up our credibility! Even if we lose money, we have to pay! That way, we can sell the stocks for the second and third phases, and for other projects in the future!”