China today is an economic superpower, predicted to overtake the U.S. by 2028. The perception in the West today of China as a modern, high-tech, and advanced economy is in sharp contrast to the images held of the old Chinese Empire. While the great wonders of Imperial Chinese civilization – such as the Great Wall and the Forbidden City – are held in high regard, Imperial China is largely seen as a decaying entity that entered into a terminal decline after encountering the West. This article will show that the truth is more complex. For centuries, China was the wealthiest country in the world, and even after establishing relations with the West, it held a commanding position in global trade networks.
European Demand for Imperial Chinese Goods
Prior to the establishment of large-scale commercial relationships with the West in the seventeenth and eighteenth century, China had consistently ranked as one of the largest economies in the world for the past thousand years, competing with India for the title. This trend continued following the Age of Exploration, in which European powers sailed east. While it is well known that the expansion of empire brought great benefits to the Europeans, what is perhaps less commonly known is that commercial contact with the West was to increase China’s dominance of the global economy for the next two hundred years.
Western interest in the newly discovered riches of the East was to prove highly lucrative for the Chines Empire. Europeans developed a taste for Chinese goods such as silk and porcelain, which were produced in China for export to the West. Later, tea also became a valuable export good. It proved particularly popular in the United Kingdom, with the first tea shop in London established in 1657. Initially Chinese goods were very expensive, and available only to the elite. However, from the eighteenth century, the price of many of these goods dropped. Porcelain for example became accessible to the newly emerging merchant class in Britain and tea became a drink for all, whether wealthy or poor.
There was also an obsession over Chinese styles. Chinoiserie swept the continent and influenced architecture, interior design, and horticulture. Imperial China was seen as a sophisticated and intellectual society, much as Ancient Greece or Rome were viewed. Decorating the home with imported Chinese furniture or wallpaper (or domestically made imitations) was a way for the newly monied merchant class to state their identity as worldly, successful, and wealthy.
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The Chinese Empire and the Silver Trade
In order to pay for these goods, the European powers were able to turn to their colonies in the New World. The beginning of the China trade in the 1600s coincided with the Spanish conquest of the Americas. Europe now had access to the huge silver reserves of the former Aztec lands.
The Europeans were effectively able to engage in a form of arbitrage. New World Silver was plentiful and relatively cheap to produce, there were huge reserves available and much of the mining work was carried out by slaves. Yet, it commanded a value twice as high in China as it did in Europe. The massive demand for silver in China was due to Ming Dynasty monetary policy. The Empire had experimented with paper money from the eleventh century (being the first civilisation to do so) but this scheme had failed due to hyperinflation in the fifteenth century. As a result, the Ming Dynasty had shifted to a silver-based currency in 1425, explaining the huge demand for, and inflated value of, silver in Imperial China.
Yields from the Spanish territories alone were immense, accounting for 85% of the world’s silver output between 1500 and 1800. Vast amounts of this silver flowed eastwards from the New World to China while Chinese goods flowed to Europe in return. Spanish silver pesos minted in Mexico, the Real de a Ocho (better known as “pieces of eight”) became ubiquitous in China as they were the only coins that the Chinese would accept from foreign traders. In the Chinese Empire these coins were nicknamed “Buddhas” due to the Spanish King Charles’s resemblance to the deity.
This massive inflow of silver sustained and boosted the Chinese economy. From the sixteenth century until the mid-nineteenth century, China accounted for between 25 and 35% of the global economy, consistently ranking as the largest or second largest economy.
As a result of this economic growth and a long period of political stability, Imperial China was able to grow and develop rapidly – in many ways it followed a similar trajectory to the European powers. During the period from 1683 – 1839, known as the High Qing Era, the population more than doubled from 180 million in 1749 to 432 million by 1851, sustained by the long peace and by the influx of New World crops such as potatoes, corn, and peanuts. Education was expanded, and literacy rates rose both in men and women. Domestic trade also grew enormously over this time period, with markets springing up in the rapidly growing cities. A commercial or merchant class began to emerge, filling the middle section of society between the peasantry and the elite.
Just as in Europe, these newly wealthy merchants with disposable income patronised the arts. Paintings were exchanged and collected, and literature and theatre boomed. The Chinese scroll painting Night-Shining White is an example of this new culture. Originally painted around 750, it shows the horse of the Emperor Xuanzong. As well as being a fine example of equine art by the artist Han Gan, it is also marked with the seals and comments of its owners, added as the painting passed from one collector to another.
Tension between the Europeans and the Chinese Empire
The decline in the economy of Imperial China began in the early 1800s. The European powers were becoming increasingly unhappy with the massive trade deficit they had with China and the amount of silver they were expending. The Europeans therefore set about attempting to modify the China trade. They sought a commercial relationship based on the principles of free trade, which were gaining ground in the European empires. Under such a regime they would be able to export more of their own goods to China, reducing the need to pay with large amounts of silver. The concept of free trade was unacceptable to the Chinese. What European merchants there were in China were not permitted to enter the country itself but were limited to the port of Canton (now Guangzhou). Here, goods were unloaded into warehouses known as the Thirteen Factories before being passed on to Chinese intermediaries.
In an attempt to establish this free trade system, the British dispatched George Macartney as an envoy to Imperial China in September 1792. His mission was to allow British traders to operate more freely in China, outside of the Canton system. After almost a year of sail, the trade mission arrived in Beijing on the 21st of August 1792. He travelled North to meet the Qianlong Emperor who was on a hunting expedition in Manchuria, north of the Great Wall. The meeting was to take place on the Emperor’s birthday.
Unfortunately for the British, Macartney and the Emperor were unable to find agreement. The Emperor flatly rejected the idea of free trade with the British. In a letter to King George III, sent back with Macartney, Qianlong stated that China “possesses all things in prolific abundance and lacks no product within its own borders” and that he had no need to “import the manufactures of outside barbarians.”
Opium and the Decline of the Chinese Economy
With free trade an impossibility, European traders sought a replacement for silver in the China trade. This solution was found in the supply of the drug opium. The East India Company (EIC), a hugely powerful company which dominated trade in the British Empire, maintained its own army and navy, and which controlled British India from 1757 – 1858, had begun importing opium produced in India into Imperial China in the 1730s. Opium had been used medicinally and recreationally in China for centuries, but had been criminalised in 1799. Following this ban, the EIC continued to import the drug, selling it to native Chinese merchants who would distribute it across the country.
The trade in opium was so lucrative that by 1804, the trade deficit that had so worried the British had turned into a surplus. Now, the flow of silver was reversed. The silver dollars received in payment for the opium flowed from China to Britain via India. The British were not the only Western power to enter the opium trade. The United States shipped opium in from Turkey and controlled 10% of the trade by 1810.
By the 1830s, opium had entered Chinese mainstream culture. Smoking the drug was a common recreational activity among scholars and officials and spread rapidly through the cities. As well as spending their newly disposable income on art, the Chinese commercial class were also keen to spend it on the drug, which had become a symbol of wealth, status, and a life of leisure. Successive Emperors had attempted to curb the national addiction – workers who smoked opium were less productive, and the outflow of silver was hugely concerning – but to no avail. That was until 1839, when the Daoguang Emperor issued an edict against the foreign import of opium. An imperial official, Commissioner Lin Zexu, then seized and destroyed 20,000 chests of British opium (worth about two million pounds) at Canton in June.
Opium War and the decline of Imperial China
The British used Lin’s destruction of opium as a casus belli, starting what became known as the Opium War. Naval battles between British and Chinese Warships began in November 1839. HMS Volage and HMS Hyacinth defeated 29 Chinese vessels while evacuating Britons from Canton. A large naval force was despatched from Britain, arriving in June 1840. The Royal Navy and the British Army far outclassed their Chinese counterparts in terms of technology and training. British forces took the forts that guarded the mouth of the Pearl River and advanced along the waterway, capturing Canton in May 1841. Further North, the fortress of Amoy and the Port of Chapu were taken. The final, decisive, battle came in June 1842 when the British captured the city of Chinkiang.
With victory in the Opium War, the British were able to impose free trade – including that of opium – on the Chinese. On the 17th of August 1842, the Nanking Treaty was signed. Hong Kong was ceded to Britain and five Treaty Ports were opened to free trade: Canton, Amoy, Foochow, Shanghai and Ningpo. The Chinese were also committed to paying reparations of $21 million. British victory demonstrated the weakness of the Chinese Empire in comparison to a modern Western fighting force. In the coming years the French and the Americans would also impose similar treaties on the Chinese.
The Treaty of Nanking began what is known in China as the “Century of Humiliation.” It was the first of many “Unequal Treaties” signed with the European powers, the Russian Empire, the United States and Japan. China was still nominally an independent country, but the foreign powers wielded great influence over its affairs. Large parts of Shanghai, for example, were given over to the International Settlement, the business and administration of which was handled by the foreign powers. In 1856, the Second Opium War broke out, ending four years later in a decisive British and French victory, the looting of Imperial China’s capital Beijing, and the opening of ten more Treaty Ports.
The effect of this foreign domination on China’s economy was great, and the contrast with the economies of Western Europe, in particular the United Kingdom was stark. In 1820, prior to the opium War, China had made up over 30% of the world economy. By 1870 this figure had dropped to just over 10% and at the outbreak of World War II it was just 7%. As China’s share of GDP plunged, that of Western Europe surged – a phenomenon dubbed “The Great Divergence” by economic historians – reaching 35%. The British Empire, the main beneficiary of the Chinese Empire, became the wealthiest global entity, accounting for 50% of global GDP in 1870.