Spend the Interest, Never the Principal: The Last Will of Sheng Xuanhuai

At half past ten on the night of April 26, 1916—some twelve hours before his death—Sheng Xuanhuai was still working on the problem of how to keep his family from losing everything.

His wife, Zhuang Dehua, kept vigil at the bedside with two of his sons, his eldest grandson, and his physician as the old man summoned Gu Yongquan, the trusted aide who ran the family’s central property office, and delivered his final ruling. The doctors say I cannot be saved, he told them, and my will, though long drafted, is unfinished. Whatever income the estate produces shall be divided into ten parts: five reserved for good works, five distributed among my five branches of heirs. If any of them disobey, invoke my dying command and rebuke them.

The audit, when it came, counted an estate of roughly 13.5 million taels of silver—swaths of real estate, plus more than five million taels in shares of the China Merchants steamship line, the Hanyeping iron-and-coal combine, the Imperial Bank of China and other companies. An ordinary household of the day lived for a year on a few dozen taels.

Sheng had thought harder about succession than perhaps any rich man in China before him. He had studied the most durable family fortune in Asia and drafted a structure to match it. Yet within a few years of his death the design was gutted, and within a generation the fortune was gone. The interesting question is not whether the plan failed. It is where.

The mandarin entrepreneur

Sheng Xuanhuai was born in 1844 in Changzhou, Jiangsu, into a family of scholar-officials—his grandfather a provincial graduate, his father a metropolitan graduate and a friend of Li Hongzhang, the most powerful statesman of the age. The son kept failing the provincial examinations. His father, unusually for the time, declined to force the issue. Observing that the boy’s gifts ran toward administration and money rather than classical essays, he steered him through practical apprenticeships—handling public business in Hubei, managing property and pawnshops in Suzhou—and then placed him, through connections, on Li Hongzhang’s staff. No examination could have offered a better start.

Over the next four decades, as the indispensable projector of Li’s modernization drive, Sheng founded or ran ninety-seven commercial and philanthropic institutions between 1872 and 1912—a run of firsts without parallel: China’s first modern university (Beiyang, today’s Tianjin University), its first bank (the Imperial Bank of China), its first integrated iron-and-steel company (Hanyeping), its first trunk railway (Beijing to Hankou), its first telegraph administration, its first joint-stock shipping enterprise (China Merchants), its first Red Cross society, its first public library, and the forerunner of Shanghai Jiao Tong University. He rose to vice-minister of Posts and Communications, with telegraphs, railways and mines under his hand; he has been called the father of Chinese higher education. At its peak his fortune was estimated at forty million taels—the richest man of the late Qing.

He was also entirely a creature of the political system. His enterprises were “official-supervised, merchant-managed,” grown under the dynasty’s protection and held together by his personal prestige rather than by any modern corporate governance. He knew it—and in 1911 the system turned on him. His policy of nationalizing the trunk railways helped ignite the revolution; he was denounced, mobbed, stripped of office, and forced to flee to Japan.

Exile supplied his last great idea. In Japan he studied the Mitsui, the merchant dynasty that had kept its property undivided for centuries under a family council and a family constitution, with the business collectively managed and heirs paid by rule. Sheng returned to Shanghai—declining office under the new republic, keeping only a national railway directorship—resolved to build the same machine for his own house.

A design ahead of its time

The machine he specified was, for 1916, startlingly modern: in effect a family trust with a board. The estate would never be divided. Heirs would live on distributions of income alone—the principle he summarized as spending the interest, never touching the principal. Half of every year’s income would go to philanthropy, extending the famine relief and school-building of his lifetime. Governance would be split between a council of eight eminent outside friends—with eight advisers, among them Li Hongzhang’s son Li Jingfang—serving as a kind of legislature and barred from executive posts, and a board drawn from the five branches of heirs, meeting weekly, with major decisions requiring unanimity. He had begun assembling the apparatus in 1914, around the family’s central property office; the deathbed instruction was its constitution.

In practice it lasted weeks. The council adopted provisional rules and set to work; almost immediately Gu Yongquan and his deputy, a Sheng nephew, abruptly resigned. The record does not say why, but the shape of the problem is plain. No one else would take the job, and the council stalled. The heirs resented the design for precisely the features that made it far-sighted: income-only distributions shrank the money each branch could touch, and property administered by outsiders felt, to sons raised on the ancient custom of dividing the estate, like dispossession. The young heirs simply refused to buy in. Sheng’s authority, it turned out, did not survive him by a season.

The compromise

In June 1917 Madame Zhuang convened the five branches and the elder kin and brokered the arrangement that actually stuck. The ten-part principle survived in form; the indivisibility did not. Half the estate, after debts, was appraised and split five ways by drawn lots—an ordinary division of family property, the very thing the will had forbidden. The other half was preserved as a charitable estate named for Sheng’s late-life sobriquet, its principal nominally untouchable, its income earmarked for philanthropy, ancestral rites and the support of poor kinsmen—administered now not by outside trustees but by Madame Zhuang and the branches themselves.

Li Jingfang and the elders codified the scheme in 1919; in February 1920 the charter was registered with the Mixed Court of Shanghai’s International Settlement, and the five branches drew their lots before the assembled clan. The external oversight Sheng had considered the heart of the system was gone. The family would now supervise itself—and with that, the outcome was probably already written.

The fourth son

The household was itself an estate: over a lifetime Sheng had seven consorts—a wife, a successor wife, five concubines—and fathered eight sons and eight daughters, each child differently mothered, schooled and favored. The eldest son died at forty; two sons were adopted out to other branches of the clan; one lost his own money in the stock market; the youngest died in infancy. The heir who mattered was the fourth son, Sheng Enyi: the favorite, born to Madame Zhuang, his name bestowed by the Empress Dowager Cixi herself, his wife the eldest daughter of Sun Baoqi, a premier of the republic. His resume glittered—the Imperial Higher Industrial College, then study in London and at Columbia, industrial training in Japan. At twenty-four he stepped into his father’s shoes as general manager of Hanyeping, director of the Tianjin–Pukou railway bureau, manager of the family bank.

For a few years he wore the part. Around 1920 he gave lavishly to flood and famine relief and collected decorations from the Beiyang government; the press had its young philanthropist. But he had inherited the assets without the scar tissue. Raised, as the family put it, not knowing what money was, he bought the first Mercedes in the Far East and had the body plated in silver, the license plate reading 4444—fourth son. Each new concubine received a Western-style villa, a car and a staff of servants. Liu Garden in Suzhou, one of the four great classical gardens of China and his father’s bequest to him, became a private pleasure ground, loud with singers night after night.

Then came the night in 1924 that Shanghai never forgot. At the tables with Lu Xiaojia—son of the Zhejiang warlord Lu Yongxiang, and his rival in dissipation—Sheng Enyi was needled as a man of great fortune and no substance; words escalated; the two agreed to stake estates on a single session. Lu pushed in tracts of Jiangnan farmland. Sheng answered with more than one hundred houses in Shanghai’s Jing’an Temple district. By morning the houses were gone. He signed the deeds over, sick with remorse—and then, instead of stopping, spent years trying to gamble his way back.

The businesses, meanwhile, ran unattended toward the rocks. Hanyeping bled under warlord politics and Japanese creditors; bank and textile capital was siphoned off to fund consumption; through the 1930s the sell-off rolled on—the Hanyeping stake extinguished in a government reorganization, the Shanghai real estate liquidated, mansions pawned, even part of Liu Garden sold on the eve of the war. The empire the father had assembled across four decades came apart in roughly twenty years.

The daughters’ lawsuit

The sharpest resistance to the pillage came from an unexpected quarter. When the brothers moved to convert the charitable fund into private property of the five male branches, the seventh daughter, Sheng Aiyi—celebrated in Shanghai society, once courted by T.V. Soong before his rise to the finance ministry—invoked the republic’s new law granting daughters equal rights of inheritance and demanded shares for herself and her younger sister. Refused, she hired lawyers and sued her own brothers, a scandal that riveted the city. The Song sisters, Ailing and Qingling, publicly took her side. She won—the landmark women’s inheritance victory of its era in China—and secured a seventh share of the assets at issue. She put part of it into founding the Paramount, the most celebrated ballroom in Shanghai; the venture struggled and was sold, and she lived out her years quietly.

The state proved a more efficient predator than any sibling. From 1927 the new Nanjing government pressed the family’s charitable estate to buy its bonds and surrender its funds; the Jiangsu provincial authorities, citing defects in the will, extracted some forty percent of its assets for military expenses. Madame Zhuang, unable to quiet the feuding, died amid the strife. In the 1930s, squeezed by war and quarrels, the charitable estate was dissolved altogether. With the common fortune gone, the family lost the last thing binding it: there was nothing left to fight over, and nothing to gather around. The branches scattered—abroad, or into straitened lives at home—and the house of Sheng, as an institution, ceased to exist.

What survived

Two of Sheng Enyi’s own sons, raised amid the wreckage, left for Japan with almost nothing and built fortunes of their own—Sheng Yuyou in hotels, Sheng Yudu in a Tokyo restaurant chain—and then did a striking thing: they sent money home, tens of millions of yen for schools in the old hometown and scholarships at Jiao Tong, the university their grandfather had founded. Stripped of every inherited advantage, the third generation rediscovered the founder’s sequence—enterprise first, then philanthropy—as if the family’s code had skipped a generation and resurfaced precisely where the money was not.

The paper survived too: the Sheng archive, upward of a hundred million characters documenting the family’s economic life from 1850 to 1936—evidence of how institutional this family’s mind was, and how little institutions alone can do. The clan had written precepts expressly forbidding gambling and extravagance; it had, at the end, a written charter and a board. What it lacked was an heir who had been made to feel the weight of any of it, and a founder with time to enforce it: Sheng conceived his trust barely five years before his death, and the discipline it required was never built. Later Chinese entrepreneurs would draw the obvious conclusions—begin succession decades early, temper heirs with real work and real failure, let professionals manage where blood cannot.

His universities are thriving today. Several of his enterprises outlived his family’s money. And his descendants, surveying the ruins, arrived at the epitaph the founder might have written himself: better than a chest of gold, a chest of books; better than ten thousand strings of cash, a single volume of family teaching. Sheng Xuanhuai left both kinds of legacy. The silver was gone within a generation. The rest—the schools, the archive, the idea that a Chinese family might be governed by rules rather than appetites—turned out to be the real principal, still paying interest a century on.