Chapter 67: Capital Contribution

This trip to Baosheng to discuss matters yielded many gains for Liu Yu. Besides building rapport with Liu Yongfu and the various battalion leaders, the plan to establish a bank was also largely finalized. Liu Yongfu withdrew 3,000 taels from the savings as his contribution along with that of the other battalions to the Black Flag Bank.

For this purpose, Liu Yu hired a Yunnan horse to carry the silver and assigned Sima Tai personally to oversee it, saying, “Leave everything to Sima.”

Sima Tai was always proud of his status, and a few compliments made him feel elated. “Don’t worry, I’ll take care of everything. By the way, are we really going to set up this bank? Is our Xiliu Battalion really going to invest 20,000 taels?”

As soon as he spoke, Ye Chenglin pricked up his ears, waiting for Liu Yu’s reply. “20,000 taels? How can we raise that much now? We’ll start with these 3,000 taels first. If more funds are needed later, we’ll contribute more.”

Ye Chenglin had to admit that this young officer had some remarkable ability to turn resources into wealth, but he still doubted it. “With just 3,000 taels in capital, how can we issue banknotes worth over 100,000 taels?”

His understanding of finance was even worse than that of Liu Yongfu and the others. Sima Tai, on the other hand, had traveled extensively in Haiyang and was well-informed. “With 1 tael of capital, you can issue banknotes worth 10 taels.”

But only up to 30,000 taels worth of banknotes could be issued. Liu Yu replied, “When we return, we’ll ask Liu Da Muaiban and Deng Cunyu to contribute funds.”

Ye Chenglin became even more skeptical. “Liu Da Muaiban may seem generous on the surface, but in reality, he’s someone who fights over every penny. Will he really help us?”

The reality was quite the opposite of his expectations. After hearing Liu Yu’s plan, Liu Qing’s first reaction was, “Can I take on the role of the manager? I can contribute 1,000 to 2,000 silver dollars to the bank without any salary.”

“Da Ban” was a term used in Shanghai, referring to the general manager of a foreign firm, a position always held by Westerners—never by a Chinese person. Liu Da Muaiban had been to Shanghai and knew that among foreign employees, the Da Ban was the highest-ranking position. Of all the European and American staff in Shanghai, there were only a few dozen such Da Bans, each of them highly respected—something that made this Chinese merchant extremely eager.

“Of course you need to invest money. As for the Da Ban position, it depends on how much you invest,” Liu Yu said confidently. “This is Vietnam’s first bank, established by the Black Flag Army, with operations spanning Bắc Kỳ. We need to have sufficient capital.”

As a professional, Liu Da Muaiban immediately analyzed the pros and cons. “Can we issue banknotes?”

“Yes!” Liu Yu replied bluntly. “Why establish a bank if not to issue banknotes?”

“Alright! I’ll invest another 1,000 to 2,000 taels and definitely become a major shareholder.” Liu Da Muaiban’s investment strategy was quite conservative. “It’s agreed—keep the manager position reserved for me. I assume you don’t have anyone suitable for that role.”

Liu Yu dismissed him as timid. “That’s too unambitious. You, Liu Da Muaiban, should invest at least 10,000 to 20,000 taels!”

Liu Qing wasn’t particularly optimistic about the future of the Black Flag Army. “I can invest 3,000 taels, but in that case, I’ll also have to serve as the chairman.”

“At least twenty thousand. Let me give you an idea,” said Liu Yu. “Besides cash, you also have assets that can be used as capital investment. Your copper coin workshop, along with those inventory stocks, is worth at least three thousand taels, right? Also, we can legalize this coin minting factory. We invested over fifty thousand taels initially, so we should be able to recoup our costs by now.”
Liu Yu’s idea was to use fixed assets as capital investment, and Deng Cunyu immediately understood. He rushed to say, “My investment in the coin minting factory is equivalent to thirty thousand taels as shares.”
At least on paper, his investment in the counterfeit coin workshop had already paid off. Liu Damaibao also said, “Then my contribution will be thirty-five thousand taels.”
Liu Yu bluntly told Deng Cunyu, “Boss Deng, you should at least contribute something too, right?”
Deng Cunyu replied, “Okay! Liu Qing will contribute three thousand taels in cash, and I’ll contribute one thousand taels…”
By this time, the Black Flag Bank had already become the largest financial monopoly in Northern Qi in their eyes. The positive assets invested included two coin minting factories, with a total value of over one hundred thousand taels.
Yet the actual capital contributed was only a mere seven thousand taels. As for those two coin minting factories, from a professional accounting perspective, their fixed assets were worth less than ten thousand taels.
But Liu Yu was determined to become the largest shareholder. “I can still contribute another hundred twenty thousand taels.”
Liu Damaibao was shocked. “How?”
Liu Yu proposed using industrial assets as capital. “I’ll inject all of Xiliuying’s industries in Shanxi into the Black Flag Bank. There are nearly two thousand workers, factories that can produce breech-loading guns…”
“There are chemical laboratories, bullet-making factories, optical equipment factories…”
These factories had only military applications and wouldn’t generate much economic profit in a few years, so Liu Yu simply decided to invest them in the bank, making himself the largest shareholder. “I’ll also contribute an additional one thousand taels for free, bringing the total to one hundred fifty-one thousand taels.”
Liu Qing thought Liu Yu’s demands were too much. “Give him some face—let’s say fourteen thousand taels.”
Thus, the shareholder structure of the Black Flag Bank was finalized: the Black Flag Army contributed three thousand taels, Liu Damaibao contributed thirty-five thousand, Deng Cunyu contributed thirty-one thousand, and Liu Yu contributed one hundred forty thousand. An additional eleven thousand taels were set aside as employee options, resulting in a superbank with a capital of two hundred twenty thousand taels.
Liu Damaibao felt proud. Although the profit margin wasn’t high, its scale was only slightly less than that of the Oriental Mercantile Bank. “We can enjoy some glory too.”
After all, it was all getting something for nothing. Three thousand taels wasn’t much, but once successful, the returns could be dozens of times that amount. That amount of money couldn’t even buy a minor government position in the Qing Dynasty, yet now he could head a medium-sized bank with a registered capital of two hundred twenty thousand taels.
Moreover, the position of general manager of the Black Flag Bank not only sounded impressive but also came with many benefits. He immediately told Liu Yu, “We can’t operate like Chinese money houses. We need to handle remittances, attract more deposits, and issue more loans. By the way, how many banknotes can we print?”

Liu Yu once had a classmate who took out a loan of 100,000 and rushed into the stock market. His first stock was CNPC at 48 yuan per share. From what Liu Yu remembered, the reserve requirement ratio at that time was around 16%, and he used this figure to estimate his own issuing capacity.

The Black Flag Army contributed 3,000 taels, he contributed 1,000 taels, and another 4,000 taels came from Deng Cunyu and Liu Qing, bringing the total to 8,000 taels. The copper coin workshop still had some inventory, and after deducting some startup costs, he decided to be a bit more conservative for the first issuance: “40,000 taels worth of currency.”

Liu Da Baoan cried out in despair, “That’s too little!”

Liu Yu continued, “That’s the amount for the first issuance; the second issuance will double that amount.”

Anyway, what they issued were military coupons. Moreover, Liu Yu still had some supplies on hand, which he could use to raise funds if necessary. He had many theoretical ideas on how to maintain currency credibility, how to acquire supplies, and how to get cash back.

Liu Da Baoan thought that issuing 120,000 taels in currency would at least allow them to provide several tens of thousands more in loans, which was already quite good.

As they were having a lively discussion, suddenly there were sounds of pulling gun triggers from outside, followed by someone shouting, “Who’s there?”

“Sima, it’s us!” It was Lian Jincheng and Jing Shi Yi’s voices. “Who’s in there?”

Recalling his newly assigned position, Liu Da Baoan spoke arrogantly, “It’s me, Manager Liu Da Ban. Let them in.”

Lian Jincheng entered excitedly, pushing the door open and saying, “Great news, great news! We’re here to bring good news to Mr. Liu.”

Liu Da Baoan—no, we should call him Manager Liu Da Ban or Manager Liu—said, “What’s the matter? Write a report.”

Even before becoming a manager, he already had a managerial air about him.

Jing Shi Yi also said cheerfully, “We’ve modified the rear-loading guns.”

Liu Yu was overjoyed, but he remained somewhat rational. He simply grabbed Lian Jincheng’s hand and asked, “What’s the quality like?”

Jing Shi Yi rushed to answer, “No problem! Thirty rounds were fired without any jamming!”

He continued, “It was supervised by the master craftsmen brought in by Desmond. We helped out, but everyone already understands the process.”

Liu Yu had invested heavily in the equipment introduced from Desmond. Aside from the loan obtained through deception, he also paid 10,000 taels in cash and received IOUs for another 20,000 taels.

Desmond also put in a lot of effort. He left several master craftsmen here to oversee installation and trial production. The first to go into operation was the ammunition factory, which not only produced Snider bullets but also actually manufactured Remington and Spencer rifle bullets. However, there were capacity issues. Even at full production, it could only produce a little over 3,000 Snider bullets per month. If it tried to produce other types of bullets at the same time, production would drop even further, probably to around 2,000 bullets per month.

This output was only enough to supply the troops’ training needs. As for the factory converting front-loading guns into rear-loading guns, progress was even slower. Lian Jincheng explained methodically, “Two guns have already been modified. Since Mr. Liu insists on maintaining quality, it takes about three days to produce one gun. If we become more proficient, it won’t take more than two days.”

Ensuring quality was something Liu Yu repeatedly emphasized. It should be noted that the Qing Dynasty’s attempts to replicate the Remington and other rifles failed due to inadequate craftsmanship. As a result, Li Hongzhang’s military industry, which had invested tens of millions of taels of silver, was unable to produce even a single qualified military rifle.

The plan to modify the Snider rifle using the Enfield 1853 design required far fewer technical standards. However, since this type of rifle had already been in use for a decade or so, Liu Yu specifically instructed Jing Shi Yi and the others to strive for precision and ensure quality at all costs.

Even so, the skills of these apprentices were still somewhat inadequate, and it would likely take a few months before they could operate effectively. Liu Yu ordered again, “Tell those master craftsmen not to hide their skills. When you can all produce high-quality rifles independently, I will reward you generously.”

Lian Jincheng, who had been sidelined, also wanted to take this opportunity to turn things around. “With generous rewards, there will surely be brave people. I’ll keep an eye on them to ensure they can produce good rifles.”

Deng Cunyu added his support, “Hmm, the coin mint also has shares held by Jincheng. Once this is done, let Jincheng learn more from Liu Qing at the Black Flag Bank.”

Liu Yu was always clear about rewards and punishments. “Agreed! Let him learn more from Manager Liu when the time comes.”

Jing Shi Yi, on the other hand, pointed out the shortcomings of the Snider rifle. “Ah Yu, although the Snider rifle is not bad, it’s far inferior to the Remington.”

One was a newly developed rifle from 1866, while the other was a modified version of an older rifle from the same year, so it was normal for there to be a performance gap. Jing Shi Yi continued, “Moreover, the cost of modifying a Snider rifle now seems higher than we expected—eight taels of silver per rifle. If production gets on track, it should cost around six taels.”

Although mechanical operations were involved, the armory still relied heavily on manual work. But Liu Yu only needed a functional breechloader and wasn’t too concerned about the price. After thinking for a moment, he said, “This is easy to handle! Just produce them with guaranteed quality and quantity.”

Suddenly, he thought of something else. “Liu Daqi, how many months are left before the Black Flag Bank starts operating?”

“That’s right! As manager, I need to plan carefully. First, open a branch in Shanxi Province, then another in Baosheng, and eventually expand to the entire northern region of Tonkin.”

Liu Yu said, “Then I’ll withdraw ten Snider rifles and 500 rounds of ammunition to give to the Black Flag Bank as preparation for issuing banknotes.”

He set prices for both types of arms: fifty taels per rifle and one fen per round of ammunition.

These prices were exorbitant—so high that one could buy several Snider rifles in Hong Kong with that amount. As for ammunition, one could buy a thousand rounds in Hong Kong for ten taels of silver, but only a hundred rounds here.

Even with high production costs, these prices still represented huge profits. Yet Liu Qing knew that someone would still buy them, as this was Tonkin, a place where even silver couldn’t buy good weapons.

Moreover, since these items couldn’t be exchanged for cash, they had to be spent quickly. From a professional perspective, he felt the Black Flag Bank’s preparation was still insufficient. So he proposed to Liu Yu, “It’s not enough. Give me fifteen Snider rifles and 2,000 rounds of ammunition…”

He knew this was a competition for resources among the two battalion commanders. Now, both the Xiliu Battalion and the Crow Battalion had recruited two new companies. Although the company commanders hadn’t been appointed yet, the ammunition sent by Demons could only equip one company; the rest of the soldiers were still waiting for their rifles. Still, he needed to secure more resources for himself: “From now on, I’ll provide… four Snider rifles and 500 rifle rounds each month.”

He took up a large portion of the products produced by the armory. Liu Yu understood his difficulties: “We’ll be printing banknotes for the Black Flag Bank soon. Well, you cover the material costs for that—no reimbursement needed.”

Liu Qing didn’t argue over such a small amount of money with Liu Yu: “Okay! You find locations for the branches of both companies—something with a good location, enough space, and fine decoration.”

Liu Yu also showed generosity for once: “I’ll cover that cost.”

When it came to small amounts of money, everyone was willing to be generous. Soon, everyone got busy setting up the Black Flag Bank.

Whether it was Liu Qing, Deng Cunyu, or Liu Yu himself, they were all prepared to incur losses. Such a bank would definitely be a policy-driven bank, with reports showing nothing but massive losses.

But the reports didn’t reflect reality. Just from issuing banknotes, it was unclear how much profit could be made, not to mention deposits and loans. It was indeed a huge project that couldn’t be completed in a short time.

The biggest problem was the severe shortage of talent. The people brought in by Liu the Purchaser were all disgruntled ex-employees of the Oriental Bank of Commerce. Besides them, there were a few pawns arranged by the major shareholders. But since it was just the beginning, everyone was full of enthusiasm and determined to build something meaningful. Liu Qing was already planning to open more branches.

Meanwhile, Desmond, who was in Hong Kong, somehow learned about the plan to establish the Black Flag Bank. He sent a letter, deducting 2,500 taels from Liu Yu’s debts and sending 200 sets of modifications for the Snider rifles as a temporary capital of 5,000 taels, saying more investments would follow.

This was almost like getting something for nothing, but Liu Yu valued those 200 sets of modifications, which meant 200 rifles. What troubled him, however, was that there were few Enfield 1853 front-loading rifles left for modification.

Arms in Tonkin were backward, and the Enfield front-loading rifle was already considered a high-quality weapon. Although he had collected some, only fifty or sixty remained. Although he had established contact through the land route provided by Desmond, the price was too high, not very cost-effective. But since production could continue for a few more months, he decided to put that issue aside for now and prepare to carry out the mission against Lu Zhiping.

The general strike by the Black Flag Army proved effective. With Liu Yongfu claiming to be ill and the various battalions making a fuss, Huang Zuoian not only paid two months’ worth of salaries but also restored the titles granted to Liu Yongfu’s parents, on the condition that they fight against Lu Zhiping.

After three months of back-and-forth, the Black Flag Army finally managed to extract some benefits from Huang Zuoian and was ready to exert effort to attack Lu Zhiping.

This time, Liu Yongfu also included the Xiliu Battalion and the Crow Battalion. Knowing that these two battalions had been expanded into three detachments, he ordered one detachment from each to go on campaign, specifying that he had already collected their salaries on Liu Yu’s behalf during the campaign.

Liu Yu was determined to save face for Liu Yongfu by sending two infantry companies on a patrol so he could return early to marry Jiang Ningxue. Their wedding was set for the twelfth month of the 1880 lunar calendar, just a few months away. With proper leadership, those two infantry companies would be virtually invincible in Northern Vietnam. Before leaving, however, he needed to appoint commanders for the new companies. Now, two well-organized infantry companies stood before him, with Ye Chenglin, Sima Tai, Zhang Biao, and others at his side, awaiting his orders.

“At ease!”
The troops stood in perfect order, but Liu Yu focused on the third row—their newest recruits. All companies had one row of newcomers, and these new companies also consisted of two rows of veterans and one row of newcomers. The third row of recruits stood at attention with their rifles held vertically, just like the first two rows. Satisfied with their discipline, he said, “Rest!”

Still in perfect order, Liu Yu nodded and announced the appointments: “Commander of the Third Company of the Xiliu Camp—Cai Yunnan!”
Applause erupted. Cai Yunnan was the expected choice. As a veteran of the Xiliu Camp, he was known for his bravery and combat prowess, making him a renowned elite soldier. Many believed he deserved to be promoted to company commander earlier than Zhang Biao. Cai Yunnan stepped forward, saluted Liu Yu, and replied loudly, “I am willing to be the elite of the Xiliu Camp and will obey orders without hesitation.”

“Commander of the Third Company of the Crow Camp—Colonel Jeken.”
This caused a stir, followed by scattered applause. How could such a foreign drunkard be a company commander? Yet Jeken seemed honored. Ignoring Ye Chenglin’s pale expression, he immediately saluted Liu Yu and said, “I am willing to be the vanguard of the Crow Camp and will absolutely obey orders from Lord Liu Yu.”

Liu Yu wasn’t polite: “You have one week to quit drinking!”
Jeken spread his arms, sighed deeply, and finally said, “I’ll do my best.”
This choice was unexpected. Ye Chenglin was dissatisfied, but upon reflection, he thought Jeken might be an acceptable candidate. Currently, Liu Haohao was highly favored—he was from the old Liu Camp, and being assigned to the Crow Camp might be disadvantageous for him. But among the elders from the Ten Continents who could promote him, none seemed qualified, and Liu Yu might not want to either. Jeken was acceptable because he didn’t have deep ties to either the Xiliu Camp or the Crow Camp, and though he was a foreigner, he had some military skills—though he drank too much. He was a viable choice.