for a description on how these courts functioned), most business-related disputes were resolved outside courts. Late Qing China had a highly commercialized society, and dispute resolution by guilds(merchant coalitions), families, and local notables based on the detailed regulations of guild family traditions, and customs was commonplace(see, e.g., Kirby 1995). In Section V 4 beloy argue that modern equivalents of these mechanisms were behind the success of Hybrid Sector in the same areas in the 1980s and 1990s The development of China's financial system from the late nineteenth century to the early twentieth century was highlighted by the emergence of Shanghai as the financial center of China and Asia(see, e.g., Lee(1993) for more details). During this period, Shanghai transformed from an agricultural-based trading hub for surrounding areas into an industrialized center linked to international goods and financial markets. With thriving entrepreneurial and trading activities, financial institutions proliferated and financial innovations surged For example, the number of Chinese lending institutions(qianzhuang)exceeded 105 in 1875; five of China's first modern banks were founded between 1897 and 1908 and by 1936, there were 28 major foreign banks that had set up branches in Shanghai. Merchants used up to eleven currencies in their transactions, some of which were printed by local bankS; the exchange rate of local currency saw wide fluctuations,many unregistered local banks( diaotang)engaged in high-leverage credit transactions with little capital reserves and defaulted frequently. At the same time, merchants fear of risk spawned an active insurance industry, which was first introduced by the British Insurance on real estate, ships, and goods became routine, with collateral and personal guarantors accompanying large transactions to reduce the risk of non-payments to alleviate the problems of asymmetric information, foreign merchants hired Chinese middlemen(and guarantors)to select Chinese merchants. Chinese and foreign merchants also devised the commission indent system, an early form of trade credit llowing firms and institutions to operate with minimum financial resources. Finally, the stock exchange in Shanghai was the largest in Asia for most of the 1920s and 1930s After the foundation of the People's Republic of China in 1949, all of the pre-1949 capitalist companies and institutions were nationalized by 1950. Between 1950 and 1978, Chinas financial system consisted of a single bank--the People's Bank of China(PBOC), a central government owned and controlled bank under the Ministry of Finance, which served as both the central bank and a commercial bank, controlling about 93% of the total financial assets of the country and handling almost all financial transactions. With its main role to finance the physical production plans, PBOC used both a"cash-plan" and a"credit-plan"to control the cash flows in consumer6 for a description on how these courts functioned), most business-related disputes were resolved outside courts. Late Qing China had a highly commercialized society, and dispute resolution by guilds (merchant coalitions), families, and local notables based on the detailed regulations of guilds, family traditions, and customs was commonplace (see, e.g., Kirby 1995). In Section V.4 below, we argue that modern equivalents of these mechanisms were behind the success of Hybrid Sector firms in the same areas in the 1980s and 1990s. The development of China’s financial system from the late nineteenth century to the early twentieth century was highlighted by the emergence of Shanghai as the financial center of China and Asia (see, e.g., Lee (1993) for more details). During this period, Shanghai transformed from an agricultural-based trading hub for surrounding areas into an industrialized center linked to international goods and financial markets. With thriving entrepreneurial and trading activities, financial institutions proliferated and financial innovations surged. For example, the number of Chinese lending institutions (qianzhuang) exceeded 105 in 1875; five of China’s first modern banks were founded between 1897 and 1908; and by 1936, there were 28 major foreign banks that had set up branches in Shanghai. Merchants used up to eleven currencies in their transactions, some of which were printed by local banks; the exchange rate of local currency saw wide fluctuations; many unregistered local banks (diaotang) engaged in high-leverage credit transactions with little capital reserves and defaulted frequently. At the same time, merchants’ fear of risk spawned an active insurance industry, which was first introduced by the British. Insurance on real estate, ships, and goods became routine, with collateral and personal guarantors accompanying large transactions to reduce the risk of non-payments; to alleviate the problems of asymmetric information, foreign merchants hired Chinese middlemen (and guarantors) to select Chinese merchants. Chinese and foreign merchants also devised the “commission indent system,” an early form of trade credit allowing firms and institutions to operate with minimum financial resources. Finally, the stock exchange in Shanghai was the largest in Asia for most of the 1920s and 1930s. After the foundation of the People’s Republic of China in 1949, all of the pre-1949 capitalist companies and institutions were nationalized by 1950. Between 1950 and 1978, China’s financial system consisted of a single bank -- the People’s Bank of China (PBOC), a central government owned and controlled bank under the Ministry of Finance, which served as both the central bank and a commercial bank, controlling about 93% of the total financial assets of the country and handling almost all financial transactions. With its main role to finance the physical production plans, PBOC used both a “cash-plan” and a “credit-plan” to control the cash flows in consumer