Chapter 1354 - The Raw Silk Business

But the most pressing matter was preparing capital for the coming silk season.

The raw silk trade had no real connection to the Merchants Bureau's business. Zhao Yingong was riding the coattails of the Japan trade to raise money—the silk business was extremely capital-intensive, and he couldn't possibly handle it alone with his current meager funds.

Now that the Colonization and Trade Department had opened the main trade routes to Japan and Southeast Asia, conditions for Lingao's trading companies to export raw silk on a large scale were ripe. Siked had sent multiple telegrams inquiring about Zhao Yingong's silk stockpile status: they had contracts with the Dutch, and although Guangdong also produced raw silk, its quality and output couldn't compare to the Jiangsu-Zhejiang region. Supplementary purchases from Hangzhou were essential.

Previously, their Jiangsu-Zhejiang raw silk had been procured through Guangdong-based agents. Going through agents inevitably meant losing a layer of profit, and Siked was now eager to have "their own people" take control of this channel.

Raw silk was China's largest export commodity from the seventeenth century through the early twentieth century. The Executive Committee's industrialization program was accelerating, investment scales were constantly expanding, and reliance on imported capital and raw materials was deepening. Much of this gap had to be filled by raw silk exports.

Yet Zhao Yingong was extremely cautious about directly involving himself in the silk trade. In Jiangnan, raw silk represented a massive industrial chain with countless people up and down the supply line making their livelihoods and fortunes from it. Touching one thread could move the whole web—mishandle it, and it would become a second Leizhou Sugar War.

Jiangnan's gentry power was formidable, with influential gentry possessing connections reaching the heavens everywhere. Though he had established certain ties through the Catholic network and by cultivating Zhang Pu's Restoration Society faction, once his silk business encroached on their interests, there would inevitably be fierce backlash. This wasn't Leizhou, where the Special Recon Team could be dispatched by morning and arrive by noon. If hostile forces counterattacked here, he—a mere xiucai from Guangdong—could find himself without a burial place.

Now was not the time to show his hand to the Jiangnan gentry. Currently, Lingao had matters to attend to on all sides, with Guangdong infiltration being the priority. In Jiangnan, he could only operate with a relatively low profile.

Zhao Yingong could only follow the principle of picking the softest persimmon to squeeze, starting with the filature stage.

Most silkworm-raising households in Jiangsu-Zhejiang were vertically integrated: they raised their own silkworms and processed their own silk. The traditional handcraft silk-making process was extremely tedious. Zhao Yingong had once had Wang Siniang's family demonstrate it for him. Starting with boiling cocoons, then reeling silk, followed by "twisting," "beating," and "calendar" processes... Still more steps awaited at specialized workshops for degumming and dyeing, twisting weft into warp, plus "hanging warps," "drawing warps," and so on. Finally came "splicing," only after which it became raw silk ready for the loom.

Not only was the process tedious, but each stage consumed enormous amounts of labor. Efficiency was pitifully low, and product quality was mediocre. Compared to semi-mechanized or fully mechanized filature mills, handcraft methods had no competitive advantage whatsoever.

If semi-mechanized filature were adopted, cocoons went in one end of the machine and finished silk came out the other—usable raw silk directly, with no need for "beating," "drawing warps," or any of it. The workshops in this trade would all have to close; the craftsmen would obviously lose their livelihoods. More seriously, in the Jiangsu-Zhejiang countryside, nearly every household owned a silk-reeling spinning wheel. Women young and old relied on this as a side income to supplement the family budget. If that spinning wheel suddenly became worthless, there really would be a scene of "silk eating people"—a land of wailing.

However, because most workers in the filature industry were from impoverished families, though numerous, they couldn't raise a powerful voice. Touching their interests was the least risky course. Even if some disturbances arose, the gentry class, caring only about immediate interests, wouldn't concern themselves. The pressure he faced would be relatively small. Once these people lost their livelihoods, they would naturally become the reserve labor force for the new filature and textile enterprises he planned to establish.

His current fundraising for the Merchants Bureau also served to expand the circle of shared interests. After all, if large-scale "popular unrest" broke out, it wouldn't be easily suppressed. Without gentry as a protective umbrella, he could easily be exploited as a scapegoat.

On his desk, in a classified folder, lay the approval he had received just yesterday from the Financial Comptroller's Office and the Planning Commission: his proposed share allocation plan for the Merchants Bureau had been approved.

Under the plan, the Bureau's total capitalization was set at two hundred thousand taels. Zhao Yingong himself, as the nominal investor, would hold 51% of shares. Of the remaining 98,000 taels: the Shen Tingyang family planned to contribute ten sand junks valued at 48,000 taels for a 24% stake; the remaining 25%—worth 50,000 taels—would be raised from gentry investors.

Zhao Yingong's so-called 51% investment was essentially "empty money for a real contract." The funds he could actually deploy amounted to only the 20,000 taels Delong had recently transferred to him. The profits from this Japan trade were certainly substantial, but he had no authority to use them at his own discretion. That the Financial Comptroller's Office had allocated 20,000 taels to him was already satisfying.

Though the Executive Committee gave naturalized citizens and natives the overwhelming impression of being "wealthy," in reality the Committee's finances were extremely tight. Had the Committee's efficiency in deploying and utilizing capital not far exceeded anything this era could match, the funding chain would long since have snapped.

Though Zhao Yingong was the regional head of the Jiangnan area—seemingly the imposing ace of the sub-branch—the resources he could actually obtain from Lingao were limited. Not only did he receive little support, but he needed to send blood back to headquarters as quickly as possible.

Thus, the 50,000 taels in raised share capital was critical to the new enterprise's operations—especially since he needed to purchase cocoons soon, which required massive capital infusion.

These past days, Manager Mao Sansheng and other subordinates had been out running around on his behalf, and he himself had personally paid calls on various Hangzhou gentry and wealthy households. The share subscription was proceeding very smoothly. This Japan trade expedition had made many wealthy families' eyes red with envy; Shen Tingyang had even specifically sent someone with a letter requesting that some quota be reserved for him—there were many privately soliciting buy-ins.

Raising shares was proving far easier than he had anticipated. Not only had the first round of 50,000 taels been essentially secured, but raising another 50,000 would likely pose no difficulty either.

Yet things weren't so simple. A modern filature mill needed only cocoons. But silkworm households that had painstakingly raised their silkworms mostly wouldn't be willing to simply sell off their cocoons—the profit was too low. In a premodern agricultural society, labor had little value; trading enormous amounts of labor for negligible cash returns was common. Silkworm households in Jiangsu-Zhejiang generally processed their own silk for sale, forming a substantial rural cottage industry.

If most silkworm households were unwilling to sell cocoons, the filature mill Zhao Yingong was now urgently building would face a "waiting for rice to cook" dilemma. This was his greatest worry.

Beyond that, he had a second concern. The small amount of cocoons that were sold directly couldn't be touched by him either—he lacked a cocoon dealer's "ministry license." Legally, he couldn't purchase cocoons directly from farmers; he could only buy from licensed cocoon dealers. And cocoon dealers formed a monopolistic guild with a reputation for squeezing customers dry. Maximizing their own profits was their sole consideration. As an outsider, obtaining sufficient cocoons from them without being fleeced was impossible—fleecing might even be acceptable, given the filature mill's low operating costs; somewhat higher prices could be tolerated. But once the mill started running, anyone with eyes would understand the importance of a reliable cocoon supply. With the merchant practices of the time, exploiting such leverage was inevitable.

How to secure a safe cocoon supply had been a major focus of Zhao Yingong's planning.

The most direct solution was, of course, to acquire an existing cocoon dealership outright, or to pull strings at the Ministry of Revenue for a "ministry license" to open his own purchasing operation.

But doing so would inevitably subject him to the guild's constraints. From the intelligence they'd gathered, the silk-and-cocoon guild enforced unified prices for cocoon and raw silk purchase and wholesale. This would greatly hinder his operations. If he ignored them, he probably couldn't survive in the guild at all. The various tribulations that the Leizhou sugar mill had faced were something Zhao Yingong had studied thoroughly.

After much deliberation, Zhao Yingong decided to build from the ground up—to control cocoon production directly at the source. In concrete terms, this meant a small-producer cooperative model similar to the Leizhou Agricultural Cooperative.

Like sugarcane production, cocoon production also required credit. Except for a few wealthy households, ordinary silkworm farmers generally needed loans during the rearing process: purchasing silkworm eggs and mulberry leaves required significant investment. Loan interest was an unavoidable and crushing expense for silkworm households. And the risks were great: a major silkworm epidemic could bankrupt a debt-ridden household. Wang Siniang's family was a case in point.

Zhao Yingong reasoned that as long as he could offer low-interest micro-loans, he could attract a substantial number of silkworm farmers. Once they were in debt, controlling their production and output would be no concern. Pushing technical improvements and industrialized rearing would then follow naturally.

Once the cooperative succeeded, his "Phoenix Mountain Silk Consortium" would be a vertically integrated entity from raw materials to sales—channels complete throughout. In the long run, this would inevitably create a demonstration effect, attracting more farmers to join the cooperative.

This meant that financial institutions like banks would become crucial. Such micro-lending was best handled by specialized organizations. Thinking of this, he recalled what Mao Sansheng had reported to him a few days ago about Hangzhou's banking industry. Among other things, it mentioned that cocoon dealers going to villages to purchase often relied heavily on loans from money shops—without such loans, they couldn't pay the purchase costs in cash. In the old timeline, Hu Xueyan had for a time very successfully dominated the raw silk export trade, and his ownership of a money shop, which gave him flexible access to capital, was a major factor.