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Ateneo de Manila University

The Mind and Heart of Chinese Success in the 1850-1898 Philippine Economy:
Chinese Business Ethics and Methods

Maria Ariela Badenas

Arlene Jane Chang
Anne Brigitte Lim
Pia Ivory Lubo
Denise Adrianna Ting

History 165-A
Dr. Olivia Anne M. Habana
January 31, 2011

Table of Contents

Introduction .................................................................................................................... 3


Brief Background of the Chinese and their Merchant Culture ................................. 4


Chinese Philosophies: Foundation of Business Ethics ................................................. 4


Chinese Merchant Culture: In China and Overseas ...................................................... 5

III. The Chinese in the Philippine Economy ...................................................................... 8


Chinese Economic Organization and Financing ........................................................... 8

IV. Carlos Palanca Tan Quien Sien--Exemplification of A Chinese Merchant...12


Conclusion..................................................................................................................... 13
References ................................................................................................................... 14


According to McCarthy, an ethnic Chinese is someone who has Chinese immigrants as

parents, is sufficiently influenced by Chinese culture, can speak a Chinese language, and observes
Chinese customs enough to call himself Chinese. Most ethnic Chinese were businessmen or traders
(1974, 1); therefore, the arrival of the Spaniards in the Philippines by the 1560s paved opportunities
for the Chinese to settle in the country. Principally, ship-owning Chinese merchants recognized the
economic significance of the Manila Galleon trade between the Philippines and Mexico that started
in 1565 (Wickberg 2000, 3-4). The Galleon trade continued up to 1815, and its decline resulted to a
shift towards the export economy (Ibid).
After the decline of galleon trade in 1815, the transition to the export crop economy began.
During 1815-1850, the surge of development in the agricultural sector created a need for a
middleman to distribute the produce from the rural areas to Manila; the Chinese mestizos initially
took on this role. However, during 1850, the Spanish wanted to further develop the export crop
economy. Thus, in order to do so, the Spanish changed their immigration policies and liberalized it
in order to allow foreigners to enter the Philippines without restriction--including the Chinese
(Wickberg 1962, 278). According to Wickberg (2000), any other nation could have benefited from
the relaxed Spanish policies, but it was the Chinese who did so because he said, it was due
particularly to Chinese business methods and financial backing (121).
Based on Wickbergs statement, the group did further research on how the Chineses
business ethics and methods contributed to their success in the Philippine economy. Therefore, the
thesis statement of this paper is: the Chineses business ethics which was derived from their
philosophy and merchant culture, functioned as the mind of the Chinese success in the 18501898 Philippine economy; while the heart of the success that regulated the flow of their
businesses in the economy, was their business methods.


Brief Background of the Chinese and their Merchant Culture

a. Chinese Philosophies: Foundation of Business Ethics
Chinese have a strong collective identity which is generalized by their philosophies. The

Chinese believe that everything in the universe is governed by the yin and yang, two forces that
resemble the principle of duality. The yin is the positive, masculine and brightness; while yang is
the negative, feminine and darkness. In order for anything to prosper, the two opposite forces must
stay in balance. The Chinese use the yin and yang to guide their every aspect of their lifestyles,
including their philosophy (Mente 1993, 16).
In Chinese philosophy, the two dominant philosophies are Daoism and Confucianism.
Confucianism was founded by Confucius, who lived in China during the warring states period (772
BC-281 BC); thus, he was a philosopher who aimed to achieve political unity through promoting
virtues among individuals (Yuan and Liu 2009, 34). Confucius taught that in order to achieve social
and political harmony, a subject, son, younger brother, wife, and younger friend must respect and
obey his or her ruler, father, older brother and older friend respectively (Ibid, 35).
According to Yuan and Liu (2009), Confucianism is characterized by four basic concepts
(35). Firstly, Confucianism promotes the importance of a family, which is why the successes and
failures of individuals represent that of a whole family, and filial piety is considered the most
important virtue (Ibid, 35-37). Secondly, collectivism is favoured over individualism. In fact,
individualism is seen as selfishness; and social groups that give plenty of support to its members are
common (Ibid, 37-39). Thirdly, humility is emphasized and individuals are taught to be an
anonymous member of the society (Ibid, 41). Finally, personal effort and education are important
because a person gains respect, pride and dignity by moving up the social ladder. This is why
Chinese are competitive (Ibid, 42-44). Although Confucius teachings did not influence the ruling

officials of his time, Confucianism became the state ideology years after his death during the Han
dynasty (206 BC- AD 9) (Ibid, 34).
Yuan and Liu (2009) also discussed Daoism, the counterpart of Confucianism. Daoism was
founded by Lao Zi,1 whose name literally means old master (47). Unlike Confucianism, Daoism
uses a spiritual view to explain the nature of things. Its most important teaching would probably be
that people should go with the flow of situations (follow the Dao or way), instead of trying to
control it, because looking for a solution becomes the source of frustration (Ibid, 48). Furthermore,
the Chinese use Daoism when they face personal or emotional problems to maintain an internal
balance. Indeed, this philosophy is the root of the common Chinese consolidation Dont take it too
seriously or Dont be against your fate (Ibid, 50).
Although Confucianism and Daoism oppose each other, most Chinese practice both
philosophies. In the workplace, the Chinese are hardworking Confucians, but during a tragic
situation or during the time for rest, they become Daoists. Following the Chineses universal
principle of duality, Confucianism is the Yin of Chinese philosophy while Daoism is the Yang; that
is why balancing these two philosophies to guide their lifestyle is important to the Chinese. These
philosophies play a crucial role in the business ethics of Chinese because they are the ones that
mould the Chinese mentality, that guide merchants decisions and business methods.
b. Chinese Merchant Culture: In China and Overseas
As observed by Wang (2000), Chinese merchant culture within China is distinct from the
merchant culture abroad. The Chinese merchant culture and its roles in business activities are much
clearer and more identifiable outside China. Wang also compared the merchant culture within and
outside China to see the differences and how it affected the society of both China and countries
where Chinese merchants are present (182).

Whether Lao Zi was a real or imaginary person is debatable (Yuan and Liu 2009, 47).

According to Wang (2000), there were negative stereotypes about merchants within China.
To them, the merchants were greedy, cunning and uncouth; hence, they were placed at the bottom
of the social structure. Although they held a low position, no one ever denied their usefulness.
Confucius and other philosophers acknowledged their value in society. Furthermore, Wang states
that these difficult conditions in which they operated in made them the most skilled in adapting and
detecting opportunities for profit making.. They became flexible because they had to guard
themselves against the condemnation of the literati, and at the same time keep their link with the
peasants and artisans to obtain goods for trading. For example, profit-seeking and risk-taking were
central values to entrepreneurship which the merchants valued, but the literati, peasants and artisans
viewed these two values as immoral. Because of literatis disapproval, merchants were forced to
tone down their profit-seeking motive and reduce the risks they were taking. Merchants were aware
that without these two elements, they would not rise above the peasants and artisans. Another way
to attain a better reputation would be through philanthropy, which was highly encouraged by the
culture of China. This was very common among the merchants. Having a low social status, they use
their wealth to gain respect from people, making them the most philanthropic group of people in
China (184-188).
The Chinese merchants outside China were perceived differently. In East Asia, the Chinese
led the way for economic progress; they became the leading merchants by the twelfth century in
Southeast Asia as well. By the fourteenth century, they gained the dominant position.
Unfortunately, there was a change in Chinas imperial policy during the Ming dynasty (1368- 1644)
which ruined the momentum of the merchants outside China. The emperor of the Ming dynasty,
decided to ban all forms of private foreign trade, but this did not stop trading; it just made the
business more dangerous. Eventually, the pressure for overseas trading became so strong that
excessive smuggling and destructive piratical raids were very rampant, which forced the Ming court

to relax the ban. Chinese merchants were once again given license to trade, but controls and
supervision by port officials remained mandatory (Wang 2000, 188-189).
According to Western writings, Chinese merchants were increasingly active in Southeast
Asia, where the Spanish, Portuguese, Dutch, and English controlled most of the trading ports. They
provided experience, skills, momentum and were the most dynamic group present. Their remarkable
instinctive ability of profit-making and risk-taking made them ingenious and adventurous traders.
Their entrepreneurial talents succeeded in making the open trading conditions work for them.
Western writings not only commented on Chinese courage, adaptability and entrepreneurship, they
also confirmed qualities of industriousness, thrift, honesty, trust, and loyalty which gave their
leaders strength and boldness. As most people expected, the overseas Chinese merchants brought
their culture with them and did everything possible to preserve these values that they believed
would help them best (Wang 2000, 189-191).
According to Wang, there are major cultural traits that characterize a Chinese merchant, but
he focuses only on three. First is the importance of the family as a primary unit of trade. According
to him, family was vital to the overseas merchant. He could not have possibly started his own
business without some family helping him out; and Chinese merchants who were close to each
other, and/or had business partners of direct kin, were more powerful because of the trust given to
him by his family and friends. Second is the freedom of Mandarin control over merchant traders
overseas. While trading with foreigners under foreign soil is racked with unpredictability (of the
foreign officials), racial discrimination, political intrigue and instability, and machinations of the
Westerners against the Chinese merchants, the freedom gave them the opportunity to develop their
talents and build up their business empires2. Last is the risk-taking feature of their entrepreneurship.
In this context, risk-taking is not blind gambling but a carefully structured strategy which could

They accomplished this by conforming to the law and adopting the culture of the country they engaged business
in (Wang 2000, 193-194).

yield large profits over time. Qualities of industriousness, shrewdness, ruthlessness, and will to
profit were required, as well as freedom to plan and think big, and take risks at the right time and
place (Wang 2000, 191-195).

The Chinese in the Philippine Economy

a. Chinese Economic Organization and Financing
During Pre-Hispanic period, the Philippines was already engaged in trade with other Asian

countries. The first recorded mention of the Philippines was in a Chinese document which records
the arrival of Philippine goods in Canton through the Arabs (Liao 1964, 4). From the late 10th
Century until the arrival of the Spaniards, China and the Philippines continued to exchange goods
through barter; fibers, tree products, sea products and gold came from the Philippines; while China
brought over porcelain, silk and various metal items. The system of trade they utilized at the time
was barter the Chinese subcontracted their goods on credit to the Filipinos until all the
commodities were disposed of and the Filipinos had their items for barter exchange ready (Ibid, 8).
Barter trade started to decline due to the influx of Spanish silver which was then flowing into China,
making silver highly demanded by the Chinese. By this time, the Spanish had already occupied the
Throughout the Spanish occupation, the Philippine economy was dominated by local
producers and consumers, as well as foreign firms. In the 18th and early 19th centuries, the gap
between the Manila-based foreign import-export firms and the archipelago-wide local producers
and consumers was filled in by the Chinese mestizo3. However, during the 1850s, the arrival of
merchant groups from China displaced the mestizos of their middleman role (Wong 1999, 151).
These groups traded through a systematic wholesale-retail agency, which became known as the

A mestizo is a person whose parents have two different nationalities (Wickber 2000, 7). Both Chinese and Spanish
mestizos were relatively prominent in the Phlippines during the Hispanic colonization (Ibid). However, this paper will
use the term mestizo to refer to the Chinese mestizo only.

cabecilla4-agent system (Wickberg 1962, 280). Thus, this new group of Chinese emerged as the
new middleman in the domestic economy (Gambe 2000, 18-19).
In the cabecilla-agent system network, there are four liners: The importers and exporters,
wholesalers, retailers, and sari-sari store keepers. The system operated through a network in which
the wholesaler (cabecilla) is the link between the foreign business firm and scattered agents across
the whole archipelago. The cabecilla-agent relationship was largely built on credit. The foreign
merchant house would advance cash or credit to the cabecilla, enabling him to purchase import
goods. Then he would send these goods to his agents who operated sari-sari stores5, which served
as outlets for imported goods. Next, the agents exchanged the goods for farmers agricultural
products; and these products were shipped back to the cabecilla, who delivered them to the
exporting firm (Wong 1999, 152).
As mentioned earlier, the cabecilla-agent relationship was largely built on credit, and how
the Chinese merchants obtained this credit should be noted. In the realm of Chinese merchants
stood the two closely related concepts of guanxi and xinyong; these concepts heavily affected how
well a business would perform, especially because it defined the business foundation, progress, and
decline. Guanxi and xinyong were evident in the way Chinese performed trade on credit.
Guanxi () is translated as personal contacts but it literally means a closed system
wherein one has to pass the gate and get connected (Yuan and Liu 2009, 91). Guanxi is basically
an exclusive network of personal contacts whose members are already acquainted with one another
(i.e., relation through blood, former classmate, second degree friends). It is through guanxi that the
Chinese merchants run their businesses perhaps this was how they found creditors, suppliers, and
even clients. The peculiar aspect of guanxi is that when one end extends a favor, it is expected that

During the first half of the 19th century, the term cabecilla was used in the Philippines, under the Spanish colonial
administration, to denote the headmen of occupational groups in Chinese communities. Shortly upon the arrival of the
ethnic Chinese in 1850, the term acquired a more general meaning as head of a Chinese firm (Wickberg, 72).

Sari-sari store- small convenience store of various products (Gambe,19 )

the other should return the favor two-fold. Most people would be uncomfortable in doing so if they
are not closely related or they have not developed a high level of trust, which is known by the
Chinese to be xinyong.
Xinyong () on the other hand is defined as trust but it literally means the use of
trust. As described both in Gambes (2000) book and Kiong and Kees (1998) article, early
Chinese business deals were not written down on paper as ones word would suffice (155; 84). It
was through xinyong that one exhibited his/her credibility, as it was integral to building and
expanding ones guanxi (Gambe 2000, 155); it also determined whether or not others would want to
conduct business in the first place (Kiong and Kee 1998, 85).
While the cabecilla system proved to be very efficient as a collection and transportation of
goods, it cannot be considered the sole reason for the Chineses foothold in the economy. Firstly,
not all Chinese wholesalers had dual roles of distributing imports and collecting exports. Many were
engaged in one or other functions; thus, making it less systematized. Secondly, there were some
provincial and Manila Chinese retailers who were directly supplied by importing firms. Lastly, one
disadvantage emerged by the end of the 19th century; some Chinese firms resulted with large debts
to banking and insurance agencies that gave the participants of the system a bad reputation
(Wickberg 2000, 71).
The bad reputation of the Chinese involved in the cabecilla-agent system primarily stemmed
from how the Chinese obtained their credit to finance their endeavors. The Chinese acquired loans
from the bank because of the limited support coming from the Chinese government (Liao 1964, 9).
Banks were formally established by the Spaniards when they came over to the Philippines6; thus,
rules about credit were established under Western notions of credit banking (ibid). The Westerners
treated business as business; they did not sympathize with the Chineses situation of having a hard

Before banks, there were only obras pias who did not loan to the Chinese (Wickberg 2000, 69).

time in earning money to meet the payment of their debt, unlike the Chineses business partners in
their guanxi who supported their members extensively at times of trouble. This illustrates how the
Chinese used guanxi with their loans from the bank:
A Chinese would ask one of the merchant firms for a rather modest amount of goods
on credit of perhaps three to six months term. As soon thereafter as possible, he made a
token repayment of a portion of the debt, asking then for a larger advance. Again, only part
of this was repaid, and additional credit secured. The process continued in this fashion, so
that some Chinese dealers were constantly in debt to foreign firms. It was estimated in one
year that the total Chinese debt of this kind amounted to 10,000,000 francs (about
2,140,000 pesos). (Wickberg 2000, 70)

The Chinese obtained bad credit ratings in the eyes of the Spaniards because the Chinese
treated the banks as a part of their guanxi. The Chinese were expecting support and
understanding from the banks, but the Spaniards were expecting no more than business
with the Chinese. Hence, cultural misunderstanding is the main culprit for this conflict.
Despite the fact that the Chinese earned a bad reputation, the cabecilla-agent system still
remained popular with them because it offered a number of advantages to its participants. The
system provided the foreign merchants with the broadest possible distribution of its products and a
wider network of purchasing agents to funnel Philippine produce. For the cabecilla, the system
provided him the benefit of operating a business where the Spanish shop tax7 did not apply. The
cabecilla did not sell to independent retailers, but simply supplied goods to his agents, and he had
no store for selling to the foreign business houses; therefore, he might be taxable for some of his
operations but he was exempted as a middleman commission merchant (Wickberg 2000, 73). The
agents also benefited because the system provided them with supplies to operate their own small
businesses-the sari-sari stores. Sari-sari stores were mainly established as an important node of the
cabecilla system. Furthermore, sari-sari stores eventually became central to the lives of the local
population; benefitting not just the retailers but the locals as well. The sari-sari stores extended and

The 1852 shop tax that replaced the 1828 industrial tax was a levy on places of business (Wickberg, 73 )

granted credit and crop advances to farmers; it offered goods to consumers and local producers at
much lower prices (Gambe 2000, 18-19).
The cabecilla-agent system not only launched more ethnic Chinese into the Philippine
economy venture, the vertical and horizontal integration of the four levels in the network [has] also
provided an efficient distribution mechanism for the Chinese (Wong 1999, 158). In just a short
span of time from the opening of the Philippines to the Chinese migrants, the Chinese businessmen
quickly expanded their scope of activities, enabling them to supply a broader range of products for
distribution in the country. Moreover, the cabecilla-agent system enabled the Chinese communities
to increase their economic influence in the Philippines to the extent of developing and varying more
business operations, and even increasing the number of Chinese migrants in the islands (Wickberg
2000, 73-80). These business methods proved to be effective as the Chinese were successful in
penetrating the Philippines from the coastal villages to the inland regions in a short amount of time
and continued to trade with the Philippines for centuries (Liao 1964, 5).

Carlos Palanca Tan Quien SienExemplification of A Chinese Merchant

Tan Quien-Sien, also known as Carlos Palanca Tan Quien Sien was a prominent Chinese

leader and merchant who came to the Philippines at 1856 (Wickberg 2000, 199). Like most Chinese
immigrants, Tan Quien-Sien came into the Philippines poor; but because of his strong work ethic
and personal connection, he was able to venture into the textile industry, and slowly climbed to the
top (ibid). He had numerous businesses including being a middle man by doing general importing,
sugar importing, coolie brokerage8, monopoly tax contracting and rice contracting (ibid, 200).

A "coolie" is a cheap ethnic Chinese laborer; thus, coolie brokerage is the occupation of looking for cheap
Chinese laborers and introducing them to interested employers (Wickberg 2000, 111-112).

Wickberg described his life as the classic hua-chiiao9 tale of rags to riches (ibid), that was
characterized by philanthropy and community service as seen in Chinese merchants (ibid),

It was amazing how quickly the ethnic Chinese were able to adapt to the business

environment of the Philippines, and adopt their role as the middlemen in less than half a century.
Their philosophy of maintaining the balance between Yin and Yang served as the foundation of
their business ethicsthe mind that powered their operations. The Confucian emphasis on
relationships, hard work and family, gave us a glimpse on why the Chinese used guanxi to create
connections, that helped them obtain financial backing; while the Daoism principle of going with
the flow explained why flexibility was part of the Chinese merchant culture. Furthermore, these
philosophies justify why the Chinese merchant culture was characterized by ingenuity,
determination, profit-making and risk-taking. In relation to that, they applied their ethics to their
business methods such as the utilization of xinyong to obtain credit, and the way they executed
the cabecilla-agent system. These business methods meanwhile functioned as the heart of the
Chinese economic influence. Finally, with its heart and mind in harmony, the Chinese
influence in the Philippine economy lasted throughout the Spanish conquest.

Hua-chiao or Huaqiao means overseas Chinese

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Asia. New York: St. Martin's Press, 2000.
Kiong, Tong Chee, and Yong Pit Kee. "Guanxi Bases, Xinyong and Chinese Business Networks."
The British Journal of Sociology, 1998: 75-96.
Liao, Shubert S.C. Chinese Participation in Philippine Culture and Economy. Manila, 1964.
Mente, Boye Lafayette De. Chinese Etiquette & Ethics in Business. Lincolnwood: NTC Busineess
Books, 1993.
"Chapter 10: The Culture of Chinese Merchants." In China and the Chinese Overseas, by Gungwu
Wang, 181-197. Singapore: Time Academic Press, 2000.
Wickberg, Edgar. "Early Chinese Economic Influence in the Philippines, 1850-1898." 1962.
. The Chinese in Philippine Life 1850-1890. Quezon City: Ateneo de Manila University Press,
Wong, Kwok-Chu. The Chinese in the Philippine Economy 1898-1941. Quezon City: Ateneo de
Manila University Press, 1999.
Yuan, Fangyuan, and Meiru Liu. Anatomy of the Chinese Business Mind. Singapore: Cengage
Learning, 2009.