Abstract

• 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

Introduction

• 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)

China’s Foreign Trade Before 1842

• 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

Trade under the treaty port system (1842-1949)

• 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...

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