Seeds of Market-Based Capitalism: Christian Missionaries and China’s Modernization

Abstract

This paper examines the historical and institutional roots of China’s market-based capitalism through the lens of financial development. We study how Christian missionaries facilitated the adoption of modern banks and the establishment of enterprises between 1857 and 1936, and how this historical exposure interacted with the market-oriented reforms of the 1980s to shape growth through 2022. Using a staggered difference-in-differences design for the pre-1936 period, we find that missionary presence increased modern banks by 31% and enterprises by 27%. Our evidence points to two mechanisms: practical education and the diffusion of useful knowledge through publications and translations. Missionaries, especially Protestants, introduced training in subjects such as mathematics, bookkeeping, economics, and English, helping local actors operate modern financial institutions. They also translated Western texts into vernacular Chinese, helping diffuse useful knowledge relevant to modern economic and financial practices. Using an instrumental variable strategy for long-run exposure, we document that these effects weakened between 1949 and 1978 but re-emerged after the market reforms. Overall, the results suggest that missionaries transmitted not only human capital, but also institution-specific knowledge that helped plant the seeds of market-based capitalism in China.