Warlord Economics: What 1920s Manchuria Reveals About Power Structures

2025.12.06

In 1928, Zhang Zuolin - a former bandit turned warlord - controlled Manchuria, commanded 300,000 troops, and negotiated with the Japanese as an equal. He had no formal education, no democratic mandate, and no legal authority over the territory he governed.

Yet he maintained power for nearly two decades in one of the most resource-rich, strategically contested regions in Asia.

His secret wasn’t military dominance. It was incentive alignment.

The Fengtian clique - Zhang’s coalition of warlords, merchants, and Japanese-backed financiers - operated less like a traditional government and more like a decentralized syndicate. The mechanisms he used reveal something fundamental about how power actually works when formal authority doesn’t exist.

Authority ≠ power. This is the lesson.

The Bandit Who Became a State

Zhang Zuolin started as a common criminal - leading a bandit gang in rural Liaoning in the 1890s. But he understood something most outlaws didn’t: legitimacy is cheaper than violence.

Instead of fighting the Qing dynasty, he offered his services. In 1902, he was appointed a local militia commander. By 1916, he was military governor of Fengtian province. By 1926, he controlled Beijing itself.

How did a bandit with no formal training, no aristocratic lineage, and no ideological movement build a coalition powerful enough to challenge the Republic of China?

He didn’t try to own everything. He gave everyone a piece.

The Structure of the Fengtian Clique

The Fengtian clique wasn’t a hierarchy - it was a coalition of independent operators bound by mutual interest.

Zhang’s inner circle included:

Wu Junsheng - Governor of Heilongjiang, controlled the northern railways
Tang Yulin - Governor of Rehe, secured the Mongolian frontier
Zhang Xueliang - Zhang’s son, commanded the air force and modernized units
Yang Yuting - Chief of staff, managed Japanese relations and arms procurement
Japanese Kwantung Army officers - Provided loans, weapons, and intelligence in exchange for economic concessions

None of these actors worked for Zhang in the traditional sense. They were allies with aligned incentives.

Wu Junsheng controlled railways because Zhang couldn’t micromanage logistics across Manchuria’s vast territory. Tang Yulin held Rehe because he had the local tribal relationships Zhang didn’t. Yang Yuting handled Japanese negotiations because Zhang needed plausible deniability.

Each actor had autonomy in their domain. But they all benefited from the collective’s strength.

If a rival warlord invaded, Wu’s railways were threatened. If Japanese loans dried up, Yang’s modernization projects stalled. If Zhang fell, they all lost their positions.

The coalition persisted not because Zhang could enforce compliance, but because defection was expensive.

The Economics of Warlord Loyalty

Zhang’s core mechanism was resource distribution, not command-and-control.

Manchuria’s wealth came from:

Railway tariffs (controlled by Wu Junsheng)
Opium trade (regulated but taxed heavily)
Salt monopolies (distributed among governors)
Japanese loans (secured through Yang Yuting)
Agricultural taxes (collected locally, split with the center)

Zhang didn’t try to centralize all revenue. Instead, he:

Let governors keep 60-70% of local taxes
Took a cut of transit fees through his territory
Controlled the disbursement of Japanese loans (making him the gatekeeper for modernization funds)

Governors could get rich in their provinces. But they needed Zhang to:

Protect them from rival warlords
Secure external financing
Arbitrate disputes with other coalition members

Zhang’s value wasn’t in hoarding resources - it was in being the most credible coordinator.

2. Reputation as Currency

Zhang rarely issued direct orders. Instead, he:

Signaled support by attending banquets, sending gifts, or arranging marriages
Withdrew favor by excluding someone from meetings or cutting off loan access
Publicized loyalty through newspapers he funded

When Yang Yuting negotiated weapons purchases from Japan, he did so on Zhang’s behalf. If the deal succeeded, Yang’s reputation rose - but so did Zhang’s, because Yang was “his man.”

If Yang defected, he’d lose:

Access to Japanese contacts (who trusted him because he represented Zhang)
His position in the coalition (making him a target for rivals)
His reputation (being labeled as disloyal in a world where trust was scarce)

Zhang’s power wasn’t coercive - it was gravitational. Staying in his orbit was more valuable than leaving.

3. Strategic Marriages

Zhang’s family didn’t just rule - they connected.

Zhang Xueliang (his son) married Yu Fengzhi, daughter of a wealthy merchant family
Zhang’s daughters married into Japanese-aligned Manchurian aristocracy
His sons-in-law were given governorships or military commands

This wasn’t romantic - it was collateral.

If a governor considered defecting, he had to weigh:

Would his daughter be disowned?
Would his grandchildren lose their inheritance?
Would his in-laws turn against him?

Marriage ties made betrayal socially expensive, not just politically risky.

Why This Structure Works

The Fengtian model succeeds when:

Resources are distributed, not concentrated - No single actor can monopolize wealth/power
Defection is costly - Leaving the coalition means losing access, reputation, or relationships
The coordinator adds value - The leader isn’t just extracting rents; they’re providing infrastructure, arbitration, or network effects
Trust is scarce - In high-uncertainty environments, coordination itself is valuable

It fails when:

The coordinator becomes extractive - If Zhang had tried to take 90% of provincial revenues, governors would’ve defected
External shocks realign incentives - The Japanese invasion in 1931 made local interests irrelevant; nationalism trumped economic ties
A rival offers a better deal - If another warlord credibly promised better terms, the coalition would fracture

The Meta-Lesson

Zhang Zuolin never had formal authority over Manchuria. He wasn’t elected, wasn’t appointed by Beijing, and wasn’t even the wealthiest member of his own coalition.

But he had structural power: the ability to coordinate actors who couldn’t coordinate themselves.

This pattern appears everywhere power exists without formal authority:

In decentralized organizations where influence flows through reputation, not hierarchy
In coalitions where participants retain autonomy but benefit from collective strength
In networks where the coordinator’s value is in connection, not control

Authority is what you can demand. Power is what people willingly give you because the alternative is worse.

Postscript: How Zhang Fell

In 1928, Zhang Zuolin was assassinated by Japanese officers who had grown frustrated with his increasing independence. His train was blown up as he returned to Manchuria from Beijing.

The irony: the same structure that gave him power - decentralization, coalition-building, reliance on external financing - made him vulnerable once his partners decided he was more valuable dead than alive.

His son, Zhang Xueliang, inherited the coalition. But by 1931, the Japanese invaded outright, and the Fengtian clique dissolved. Local governors defected, revenue streams dried up, and the coalition that had lasted two decades collapsed in months.

The lesson: coordination-based power is flexible and resilient - until it isn’t. The moment your partners have a better option, the structure evaporates.

Zhang Zuolin understood incentives. But he didn’t control them.

And in the end, neither does anyone else.

If you found this interesting, I’m exploring more intersections of history, economics, and systems design. Let’s talk: jameshan.cs@gmail.com