#3050 - Week 10 Reading Keller, Li And Shiue, 2010 - Chinese Economic History Since 1850

Volume of foreign trade remained limited initially

Notable expansion in the diversity of products

New goods became imported into China

Regional diffusion of foreign goods was facilitated greatly by the expansions of the port system

Hong Kong was an intermediary in China’s trade

Long-term fluctuations suggest learning effects

China’s recent growth is in line with her income growth

Sir Henry Pottinger was overly optimistic about the opportunities for world trade for China

Reasons for modern success of Chinese trade

Contemporary view:

China’s recent success was primarily as a result of the post-1978 reforms

Contradicts the idea that sustained economic growth requires simultaneous political reform

Present day view:

China’s currency interventions that keep the Renminbi from appreciating

China’s entry into the WTO in the year 2001

Were more important reasons

How did opening of China by West affect growth?

View 1:

China would have benefited from the increase in trade if it ‘hadn’t arrived through gunboats’

View 2:

Foreign trade at the time was too trivial in size to matter for China

View 3:

Slowed down her growth

Chinese Maritime Customs (CMC)service

Setup and run by the West to govern China’s foreign trade

Because Qing government were unable to project effective rule

Local powers competed with official stated goals

Introduced a consistent set of rules

Transfer of a Western institution

Evidence supports that this increased trade and welfare

Notable expansion in the diversity of product categories and new goods that were imported into China

Previous authors have overlooked this

50% faster than US between 1970-2000

Therefore product variety gains are not limited to highly developed countries

Importance of Hong Kong suggests high fixed learning costs to trade during this period

Importance of Hong Kong suggests high fixed learning costs to trade

Larger countries conduced less of their trade with China through HK than smaller countries

HK’s trade intermediation became less important over time

China’s recent position in world trade appears less exceptional in light of its long-run history

Recent growth due to 2 factors:

Reversion from the depressed levels of the pre-1978 period

Lifting of trade restrictions

Current footprint in world trade is mainly that of a very large country rapidly industrializing

Opening of China for trade in 19^th century has been examined by many authors

• E.g. Morse 1926, Fairbank, 1978 (Descriptive accounts)

Trade came about through a quasi-colonial set-up imposed by Western powers

• Early writers see this in a negative way

  • Opium addiction

  • Destroying domestic industry

• Modern writers:

  • Foreign trade was small

  • Foreign penetration was very limited

    • Inefficient to counter the forces of China’s traditional culture and society

  • Foreign trade could have had benefits for China but the ultimate influence was minor

Van den Wen 2004, Brunero, 2004, Bickers 2008 looked at the institutional aspects of the CMC

Rawsi(1970) showed that even though treaty ports were opened to foreign merchants, Western traders still relied heavily on compradors

Mitchener and Yan (2010) found that a surge in trade around WW1 caused a decline in the relative skilled wage in China

New goods are known to be important in driving overall trade growth (Hummels and Klenow, 2005)

Silk road around 1000 BC

4^th/5^th century CE saw sea-going trade increase with Asia

Much of China’s substantial trade with Asian countries was initiated by China, and conducted well into the 19^th century with seagoing Chinese junks

Disintegration of the Mongol empire and Ottoman conquest of Constantinople and Alexandria meant European countries would explore sea routes to the East

1517 Portuguese reached China

• 1557 settled in Macao

British reached China in 1637

• East India Company had monopoly for British trade with China since 1600

  • Arguably restricted British trade with China

China’s policy towards foreign trade on average was fairly restrictive, but fluctuated a lot over the centuries

Foreign trade occurred generally under a tributary system under which foreigner received the right to trade in China for limited periods of time

Restriction of foreign trade to a single port as of the end of the 18^th was due to it being easier to manage this way

• Not because the Chinese were ignorant of the benefits trade could bring

• Difficulties of managing the discord between foreigners and native populations in China

  • Threatened domestic stability by inciting unrest, disorder and promoting piracy

• Not completely irrational

• Trade restrictions were thus employed to achieve domestic policy goals

There wasn’t initially much demand for foreign goods

• Matheson traders reported that the Chinese native nankeen cotton cloth was superior in quality and cost compared to Manchester cotton goods

• Ban on opium trade epitomized the sentiment of Western traders that China restricted the entry of foreign goods

Treaty of Nanjing (1842)

• Abolished the traditional tributary system

  • Liberalized the highly regulated Co-Hong trading system at Guangzhou

• Opened additional ports to foreign trade

• Ushered in era of Treaty Port System from 1842 until 1948

Chinese Customs authority remained in charge of processing foreign trade initially

• But because of the relatively weak central government, foreign trade revenue fell primarily in the hands of provincial and local authorities

  • Ill-equipped to handle the larger volume of trade coming in

  • Foreign trade not subject to a consistent set of rules

    • Payment of trade taxes were a matter of bargaining power and rife with corruption

Chinese Maritime Customs (CMC) service founded in 1854 by foreign consuls in Shanghai

• To collect maritime trade taxes that were going unpaid due to the inability of Chinese officials to collect them during the Taiping Rebellion

• Under the jurisdiction of the Chinese Foreign Office

• Initial opposition to the CMC came from foreign consuls who feared the inspectors were usurping some of their powers

  • Foreign merchants were initially opposed because they now had to deal with customs formalities whereas previously this was left to the Chinese middlemen

  • But foreign businesses came to prefer the consistence and predictable customs treatment by the CMC system

• Chinese central government naturally resented loss of sovereignty from Treaty of Nanjing

  • But CMC substantially increased net tariff revenues

    • Local government officials probably sustained a net decline in benefits

• Extended responsibilities to include anti-smuggling operations, coastal policing etc.

• Establishment of the CMC not only broadened the political influence of Western powers in China but also ensured that China would have the means to pay the indemnities

  • West wanted to support the expansion of commercial exchange between China and their own countries

• Did not establish customs stations in all of ports, but rather, it focused on the ports that were important for foreign trade

• Quality of data collected by CMC is generally considered to be high

  • Internally consistent

  • Generally matches up with corresponding trade data for the same flow from other countries

  • Typical employees were high skilled graduates from Oxbridge, Harvard and Yale

Volume of China’s overall foreign trade is relatively stable before the year 1885

• Afterwards, the evolution of her trade sees a linear trend

Impact of WW1 on China’s trade growth was limited

• European countries’ trade strongly declined during WW1 which is consistent with the idea that China gained market share in world trade during this period

Largest sources of imports early on were Great Britain

• Next were the British Empire and Japan

• Imports from US by 1900 are almost twice as large as those from Continental Europe

• While China exported primarily to Great Britain at the beginning of the period around 75% of the non HK trade, by 1900 the British share was only 10%

  • Increasing importance of exports to Continental Europe and more exports to Japan

Russia during this time accounts for a significant portion of China’s exports, while it is not important for China’s imports

During the first half of the 20^th century, near-by Japan was the most important source of Chinese imports, followed by the US while GB had fallen to third place

Japan’s role changed significantly over this half century

• Rose from 20% to close to 40% of China’s imports between 1915 and 1925 before falling drastically, close to zero at the end of WW2

These changes are as much a sign of China’s success to penetrate new markets as of income growth in another set of countries

China accounted for about 2% of world trade from 1913 to 1938, with a peak in the 1920s

• It took a large part of the 20^th century until China returned to this share of world trade

China’s share of world trade was smaller than its share in world GDP

• Also true for US, India and Japan

Difficult to conclude that China’s foreign trade was unusually small, because for a given world population foreign trade is bound to fall with the size of a country’s domestic population

After the Opium War, British and other major European countries were the main trade partners

By early 20^th century, the regional emphasis was already starting to shift towards other countries, the US and Japan

• Partly due to mix of commodities...