Augustine Heard & Co.; A Sino-American trading house in Hong Kong

Dear Gentle Reader,

Today, a quick tale.

In days of yore, Augustine Heard & Co. (“AHC”) was a prominent Sino-American trading company in Asia. 

AHC started in Canton, moved to Hong Kong, and had offices in Shanghai, Canton, Macao, Hankow, Hanyang, Kukiang, Foochow, Yokohama, Nagasaki, and Kanagawa. 

AHC was to be involved with HSBC (the Hongkong and Shanghai Banking Corporation) from its start and was also an intimate trading partner of Jardine Matheson. 

With 1028 volumes, and 153 cartons, in the joint Yale/HBS Heard Archive (at Harvard Business School) the firm left a legacy for scholars, not just the Heard family.

The Heard family were English, but had left for Massachusetts in 1647. 

By the late eighteenth century they were established in distilleries, property, West Indies trade, and politics in Massachusetts’ Senate. 

By 1801, the first Heard had come to Asia and never left. That 23 year old Heard was interred in Whampoa (Guangzhou/Canton, China). 

Asia was hard; there are many young men and young women in the expatriate graveyards.

The next Heard in Asia fared better. 

Augustine Heard arrived in 1809 as a supercargo, or master seller, on a trading vessel. 

By 1834, Augustine Heard had progressed from supercargo to Captain to ship investor to partner in the great American trading firm Russell & Co., based in Macao, and had then retired back to Massachusetts to look after American interests; but, Russell & Co. was foundering.

In 1840 Augustine Heard formed AHC which was headquartered in Canton. 

Within short order four Heards of the next generation had been apprenticed to management and had become partners in what was, swiftly, a family business. 

The Second Opium War (1857-1858) was between the British and French Empires on one side and The Chinese Qing Empire on the other. The Chinese wanted to stop the Opium trade to reverse silver outflows from the Chinese territory and the Western Empires wanted it to continue and expand due to the correspondingly phenomenal inflows of silver into their respective treasuries.

Almost immediately after AHC's incorporation, the great British Hong (trading giant/commercial conglomerate based out of China or Hong Kong) Jardine Matheson asked AHC to take over its China trade (prinicipally Opium). 

Why? Because, in the First Opium War the British Hongs were denied access to China and Jardine Matheson did not want to lose its client networks.

AHC took over all of Jardine Matheson’s opium trade for the duration of the Opium War and the embargo on British ships. 

Jardine Matheson's windfall trade provided cash flows of 10 million USD per annum to AHC while the Second Opium War lasted.

AHC used this windfall to finance meaningful expansion including opening the first modern, Western office in Japan (Yokohama) in 1859 (John Heard inveigled himself onto the US military vessel taking the US Minister to Japan). 

Further, AHC had ordered the first steamer (700 tons displacement) to arrive in Asia, in 1861, for coastal and river shipping. 

In 1860, when the embargo ended, AHC returned Jardine Matheson’s opium trade and AHC focused on: trading (mostly cotton from the USA and some opium from India to China, and silks and teas on the return voyage); coastal shipping and river shipping in the Orient (rice from Siam and Formosa); insurance agency; and machining, iron works, and baking in Hong Kong.

AHC spent fortunes acquiring a palatial residence in Macau, a massive presence on the Bund in Shanghai, and Heard House in Hong Kong (now Hong Kong's Court of Final Appeal), among many other assets and extravagances. 

Cash flows had been immense, but, times were changing. 

The eponymous Augustine had long since retired, and beside John Heard who opened up the Japanese trade, many of the Heard scions in the partnership were not the best at cash flow management. 

Worse, there was a culture of excessive expenditure at AHC. 

This, combined with four other factors, led to the demise of AHC by 1875. 

What were those other four factors? 

First, AHC did not substitute sail for steam on her great sea voyages (possibly due to challenges discovered by being a first mover in steam-driven coastal and river shipping). 

Second, the coastal and river shipping markets were taken over by local firms. 

Third, the advent of telegrams shifted the balance of control of information away from the traders to the buyers. 

Finally, the establishment of banks in Hong Kong exposed all the trading firms to increased competition, as capital to build ships and finance trade had been a significant barrier to entry to competitors. 

These factors reduced AHC profit margins then AHC profits entirely. 

By 1875, AHC was bankrupt.

A cautionary tale for today? Who knows. 

But, your humble scribe was quite surprised to look out and see these two luxury yachts being freighted (!) into Victoria Harbour, Hong Kong, this morning.

I guess some people are still spending.

Remember Augustine Heard & Co. ....

Tschuess,

Chris