Abstract

China experienced modern economic growth from 1890 to 1937. The expansion of foreign trade contributed to this economic growth. However, beginning at the end of the nineteenth century, dishonest practices, such as product adulteration, had been found in various transactions in China. In particular, adulteration was often a problem in the exports of goods from China. This article considers the reasons behind the emergence and resolution of a quality problem in the Chinese tung oil export market in the middle Yangtze Valley from the 1890s to the mid-1930s. Impure oil was customarily traded among Chinese in tung oil transactions; however, foreign merchants expected pure oil, which resulted in confusion in the market and a loss of business. Therefore, as the mixed oil problem became increasingly serious, market participants tried to create institutions to prevent adulteration. However, the formal institutions were not sufficient to resolve the problem until the 1930s. In China, the function of informal institutions complemented the imperfect functions of the formal institutions. More importantly, the institutionalization in the 1930s, which was associated to the Great Depression, was based on gradual change until the 1920s. Consequently, the quality problem headed toward a resolution in the 1930s.