Establishment of trade relations
Direct maritime trade between Europe and China began in 1557 when the Portuguese leased an outpost from the Ming dynasty at Macau. Other European nations soon followed the Portuguese lead, inserting themselves into the existing Asian maritime trade network to compete with Arab, Chinese, Indian, and Japanese merchants in intra-regional commerce. After the Spanish conquest of the Philippines the exchange of goods between China and Europe accelerated dramatically. From 1565 on, the Manila Galleons brought silver into the Asian trade network from mines in South America. China was a primary destination for the precious metal, as the imperial government mandated that Chinese goods could only be exported in exchange for silver bullion.
British ships began to appear sporadically around the coasts of China from 1635 on. Without establishing formal relations through the Chinese tributary system, by which most Asian nations were able to negotiate with China, British merchants were only allowed to trade at the ports of Zhoushan, Xiamen, and Guangzhou. Official British trade was conducted through the auspices of the British East India Company, which held a royal charter for trade with the Far East. The East India Company gradually came to dominate Sino-European trade from its position in India and due to the strength of the Royal Navy.
Trade benefited after the newly-risen Qing dynasty relaxed maritime trade restrictions in the 1680s. Taiwan came under Qing control in 1683 and rhetoric regarding the tributary status of Europeans was muted. Guangzhou (known as Canton to Europeans) became the port of preference for incoming foreign trade. Ships did try to call at other ports, but these locations could not match the benefits of Canton's geographic position at the mouth of the Pearl River, nor did they have the city's long experience in balancing the demands of Beijing with those of Chinese and foreign merchants. From 1700 onward Canton was the center of maritime trade with China, and this market process was gradually formulated by Qing authorities into the "Canton System". From the system's inception in 1757, trading in China was extremely lucrative for European and Chinese merchants alike as goods such as tea, porcelain, and silk were valued highly enough in Europe to justify the expenses of traveling to Asia. The system was highly regulated by the Qing government. Foreign traders were only permitted to do business through a body of Chinese merchants known as the Cohong and were forbidden to learn Chinese. Foreigners could only live in one of the Thirteen Factories and were not allowed to enter or trade in any other part of China. Only low level government officials could be dealt with, and the imperial court could not be lobbied for any reason excepting official diplomatic missions. The Imperial laws that upheld the system were collectively known as the Prevention Barbarian Ordinances (防範外夷規條). The Cohong were particularly powerful in the Old China Trade, as they were tasked with appraising the value of foreign products, purchasing or rebuffing said imports, and charged with selling Chinese exports at an appropriate price. The Cohong was made up of between (depending on the politics of Canton) 6 to 20 merchant families. Most of the merchant houses these families ruled had been established by low-ranking mandarins, but several were Cantonese or Han in origin. Another key function of the Cohong was the traditional bond signed between a Cohong member and a foreign merchant. This bond stated that the receiving Cohong member was responsible for the foreign merchant's behavior and cargo while in China. In addition to dealing with the Cohong, European merchants were required to pay customs fees, measurement duties, provide gifts, and hire navigators.
Despite restrictions, silk and porcelain continued to drive trade through their popularity in Europe, and an insatiable demand for Chinese tea existed in Britain. From the mid-17th century onward around 28 million kilograms of silver were received by China, principally from European powers, in exchange for Chinese products.
European trade deficits
A brisk trade between China and European powers continued for over a century. While this trading heavily favored the Chinese and resulted in European nations sustaining large trade deficits, the demand for Chinese goods continued to drive commerce. In addition, the colonization and conquest of the Americas resulted in European nations (namely Spain, Great Britain, and France) gaining access to a cheap supply of silver, resulting in European economies remaining relatively stable despite the trade deficit with China. This silver was also shipped across the Pacific Ocean to China directly, notably through the Spanish-controlled Philippines. In stark contrast to the European situation, Qing China sustained a trade surplus. Foreign silver flooded into China in exchange for Chinese goods, expanding the Chinese economy but also causing inflation and forming a Chinese reliance on European silver.
The continued economic expansion of European economies in 17th and 18th centuries gradually increased the European demand for precious metals, which were used to mint new coins; this increasing need for hard currency to remain in circulation in Europe reduced the supply of bullion available for trade in China, driving up costs and leading to competition between merchants in Europe and European merchants who traded with the Chinese. This market force resulted in a chronic trade deficit for European governments, who were forced to risk silver shortages in their domestic economies to supply the needs of their merchants in Asia (who as private enterprises still turned a profit by selling valuable Chinese goods to consumers in Europe). This gradual effect was greatly exacerbated by a series of large-scale colonial wars between Great Britain and Spain in the mid 18th century; these conflicts disrupted the international silver market and eventually resulted in the independence of powerful new nations, namely the United States and Mexico. Without cheap silver from the colonies to sustain their trade, European merchants who traded with China began to take silver directly out of circulation in the already-weakened economies of Europe to pay for goods in China. This angered governments, who saw their economies shrink as a result, and fostered a great deal of animosity towards the Chinese for their restriction of European trade. The Chinese economy was unaffected by fluctuations in silver prices, as China was able to import Japanese silver to stabilize its money supply. European goods remained in low demand in China, ensuring the longstanding trade surplus with the European nations continued. Despite these tensions, trade between China and Europe grew by an estimated 4% annually in the years leading up to the start of the opium trade.
Opium as a medicinal ingredient was documented in Chinese texts as early as the Tang dynasty, but the recreational usage of narcotic opium was limited. As with India, opium (then limited by distance to a dried powder, often drunk with tea or water) was introduced to China and Southeast Asia by Arab merchants. The Ming dynasty banned tobacco as a decadent good in 1640, and opium was seen as a similarly minor issue. The first restrictions on opium were passed by the Qing in 1729 when Madak (a substance made from powdered opium blended with tobacco) was banned. At the time, Madak production used up most of the opium being imported into China, as pure opium was difficult to preserve. Consumption of Javanese opium rose in the 18th century, and after the Napoleonic Wars resulted in the British occupying Java, British merchants became the primary traders in opium. The British realized they could reduce their trade deficit with Chinese manufactories by counter-trading in narcotic opium, and as such efforts were made to produce more opium in the Indian colonies. Limited British sales of Indian opium began in 1781, with exports to China increasing as the East India Company solidified its control over India.
The British opium was produced in Bengal and the Ganges River Plain. Rather than develop the Indian opium industry themselves, the British were able to inherit an existing opium industry from the declining Mughal Empire, which had for centuries profited by selling unrefined opium inside the empire. However, unlike the Mughals the British saw opium as a potentially valuable export. The East India Company itself neither produced nor shipped opium, but did set the horticultural laws allowing for opium cultivation and actively facilitated the transport of the drug to company-controlled ports. From Calcutta, the company's Board of Customs, Salt, and Opium concerned itself with quality control by managing the way opium was packaged and shipped. No poppies could be cultivated without the company's permission, and the company banned private businesses from refining opium. All opium in India was sold to the company at a fixed rate, and the company hosted a series of public opium auctions every year from November to March. The difference of the company-set price of raw opium and the sale price of refined opium at auction (minus expenses) was profit made by the East India Company. In addition to securing poppies cultivated on lands under its direct control, the company's board issued licences to the independent princely states of Malwa, where significant quantities of poppies were grown.
Opium ships at Lintin
, China, 1824
By the late 18th century, company and Malwan farmlands (which were traditionally dependent on cotton growing) had been hard hit by the introduction of factory-produced cotton cloth, which used cotton grown in Egypt or the American South. Opium was considered a lucrative replacement, and was soon being auctioned in ever larger amounts in Calcutta. Private merchants who possessed a company charter (to comply with the British royal charter for Asiatic trade) bid on and acquired goods at the Calcutta auction before sailing to Southern China. British ships brought their cargoes to islands off the coast, especially Lintin Island, where Chinese traders with fast and well-armed small boats took the goods inland for distribution, paying for the opium with silver. The Qing administration initially tolerated opium importation because it created an indirect tax on Chinese subjects, as increasing the silver supply available to foreign merchants through the sale of opium encouraged Europeans to spend more money on Chinese goods. This policy provided the funds British merchants needed to then greatly increase tea exports from China to England, delivering further profits to the Qing monopoly on tea exports held by the imperial treasury and its agents in Canton.
Storage of opium at a British East India Company warehouse, c. 1850
However, opium usage continued to grow in China, adversely affecting societal stability. From Canton, the habit spread outwards to the North and West, affecting members from every class of Chinese society. This spread led to the Qing government issuing an edict against the drug in 1780, followed by an outright ban in 1796, and an order from the governor of Canton to stop the trade in 1799. To circumnavigate the increasingly stringent regulations in Canton, foreign merchants bought older ships and converted them into floating warehouses. These ships were anchored off of the Chinese coast at the mouth of the Pearl River in case the Chinese authorities moved against the opium trade, as the ships of the Chinese navy had difficulty operating in open water. Inbound opium ships would unload a portion of their cargo onto these floating warehouses, where the narcotic was eventually purchased by Chinese opium dealers. By implementing this system of smuggling, foreign merchants could avoid inspection by Chinese officials and prevent retaliation against the trade in legal goods, in which many smugglers also participated.
In the early 19th century American merchants joined the trade and began to introduce opium from Turkey into the Chinese market — this supply was of lesser quality but cheaper, and the resulting competition among British and American merchants drove down the price of opium, leading to an increase in the availability of the drug for Chinese consumers. The demand for opium rose rapidly and was so profitable in China that Chinese opium dealers (who, unlike European merchants, could legally travel to and sell goods in the Chinese interior) began to seek out more suppliers of the drug. The resulting shortage in supply drew more European merchants into the increasingly lucrative opium trade to meet the Chinese demand. In the words of one trading house agent, "[Opium] it is like gold. I can sell it anytime." From 1804 to 1820, a period when the Qing treasury needed to finance the suppression of the White Lotus Rebellion and other conflicts, the flow of money gradually reversed, and Chinese merchants were soon exporting silver to pay for opium rather than Europeans paying for Chinese goods with the precious metal. European and American ships were able to arrive in Canton with their holds filled with opium, sell their cargo, use the proceeds to buy Chinese goods, and turn a profit in the form of silver bullion. This silver would then be used to acquire more Chinese goods. While opium remained the most profitable good to trade with China, foreign merchants began to export other cargoes, such as machine-spun cotton cloth, rattan, ginseng, fur, clocks, and steel tools. However, these goods never reached the same level of importance as narcotics, nor were they as lucrative.
Graph showing the increase in Chinese opium imports by year.
The Qing imperial court debated whether or how to end the opium trade, but their efforts to curtail opium abuse were complicated by local officials and the Cohong, who profited greatly from the bribes and taxes involved in the narcotics trade. Efforts by Qing officials to curb opium imports through regulations on consumption resulted in an increase in drug smuggling by European and Chinese traders, and corruption was rampant. In 1810, the Daoguang Emperor issued an edict concerning the opium crisis, declaring,
Opium has a harm. Opium is a poison, undermining our good customs and morality. Its use is prohibited by law. Now the commoner, Yang, dares to bring it into the Forbidden City. Indeed, he flouts the law!
However, recently the purchasers, eaters, and consumers of opium have become numerous. Deceitful merchants buy and sell it to gain profit. The customs house at the
Ch'ung-wen Gate was originally set up to supervise the collection of imports (it had no responsibility with regard to opium smuggling). If we confine our search for opium to the seaports, we fear the search will not be sufficiently thorough. We should also order the general commandant of the police and police- censors at the five gates to prohibit opium and to search for it at all gates. If they capture any violators, they should immediately punish them and should destroy the opium at once. As to Kwangtung [Guangdong] and Fukien [Fujian], the provinces from which opium comes, we order their viceroys, governors, and superintendents of the maritime customs to conduct a thorough search for opium, and cut off its supply. They should in no ways consider this order a dead letter and allow opium to be smuggled out!
Changing trade policy
In addition to the start of the opium trade, economic and social innovations led to a change in the parameters of the wider Sino-European trade. The formulation of classical economics by Adam Smith and other economic theorists caused academic belief in mercantilism to decline in Britain. Under the prior system, the Qianlong Emperor restricted trade with foreigners on Chinese soil only for licensed Chinese merchants, while the British government on their part issued a monopoly charter for trade only to the British East India Company. This arrangement was not challenged until the 19th century when the idea of free trade was popularised in the West. Fueled by the Industrial Revolution, Britain began to use its growing naval power to spread a broadly liberal economic model, encompassing open markets and relatively barrier free international trade, a policy in line with the credo of Smithian economics. This stance on trade was intended to open foreign markets to the resources of Britain's colonies, as well as provide the British public with greater access to consumer goods such as tea. In Great Britain, the adoption of the gold standard in 1821 resulted in the empire minting standardized silver shillings, further reducing the availability of silver for trade in Asia and spurring the British government to press for more trading rights in China.
In contrast to this new economic model, the Qing dynasty continued to employ a Confucian-Modernist, highly organized economic philosophy that called for strict government intervention in industry for the sake of preserving societal stability. While the Qing government was not explicitly anti-trade, a lack of need for imports and increasingly heavy taxes on luxury goods limited pressure on the government to open further ports to international trade. China's rigid merchant hierarchy also blocked efforts to open ports to foreign ships and businesses. Chinese merchants operating in inland China wanted to avoid market fluctuations caused by importing foreign goods that would compete with domestic production, while the Cohong families of Canton profited greatly by keeping their city the only entry point for foreign products.
At the turn of the 19th-century countries such as Great Britain, the Netherlands, Denmark, Russia, and the United States began to seek additional trading rights in China. Foremost among the concerns of the western nations was the end of the Canton System and the opening of China's vast consumer markets to trade. Britain in particular was keenly increasing its exports to China, as the empire's implementation of the gold standard forced it to purchase silver and gold from continental Europe and Mexico to further fuel its rapidly industrializing economy. Attempts by a British embassy (led by Macartney in 1793), a Dutch mission (under Jacob van Braam in 1794), Russia (headed by Yury Golovkin in 1805), and the British again (Earl William Amherst in 1816) to negotiate increased access to the Chinese market were all vetoed by successive Qing Emperors. Upon his meeting the Jiaqing Emperor in 1816, Amherst refused to perform the traditional kowtow, an act that the Qing saw as a severe breach of etiquette. Amherst and his party were expelled from China, a diplomatic rebuke that angered the British government.
As its merchants gained increasing influence in China, Great Britain bolstered its military strength in Southern China. Britain began sending warships to combat piracy on the Pearl River, and in 1808 established a permanent garrison of British troops in Macau to defend against French attacks.
Foreign merchants in Canton
As the opium-fueled China Trade increased in scope and value, the foreign presence in Canton and Macau grew in size and influence. The Thirteen Factories district of Canton continued to expand, and was labeled the "foreign quarter." A small population of merchants began to stay in Canton year round (most merchants lived in Macau for the summer months, then moved to Canton in the winter), and a local chamber of commerce was formed. In the first two decades of the 19th century, the increasingly sophisticated (and profitable) trade between Europe and China allowed for a clique of European merchants to rise to positions of great importance in China. The most notable of these figures were William Jardine and James Matheson (who went on to found Jardine Matheson), British merchants who operated a consignment and shipping business in Canton and Macau. While the pair dealt in legal goods, they also profited greatly from selling opium. Jardine in particular was effective in navigating the political environment of Canton to allow for more narcotics to be smuggled into China. He was also contemptuous of the Chinese legal system, and often used his economic influence to subvert Chinese authorities. This included his (with Matheson's support) petitioning for the British government to attempt to gain trading rights and political recognition from Imperial China, by force if necessary. In addition to trade, some western missionaries arrived and began to proselytize Christianity to the Chinese. While some officials tolerated this (Macau-based Jesuits had been active in China since the early 17th century), some officials clashed with Chinese Christians, raising tensions between western merchants and Qing officials.
While the foreign community in Canton grew in influence, the local government began to suffer from civil discord inside China. The White Lotus Rebellion (1796–1804) drained the Qing dynasty's treasury of silver, forcing the government to levy increasingly heavy taxes on merchants. These taxes did not abate after the rebellion was crushed, as the Chinese government began a massive project to repair state-owned properties on the Yellow River, referred to as the "Yellow River Conservancy". The merchants of Canton were further expected to make contributions to fight banditry. These taxes weighed heavily on the profits made by the Cohong merchants; by the 1830s, the once-prosperous Cohong had seen their wealth greatly reduced. In addition, the declining value of China's domestic currency resulted in many people in Canton using foreign silver coins (Spanish coins were the most valued, followed by American coins) as they contained higher amounts of silver; this allowed Canton to mint many Chinese coins from a few melted-down western coins, greatly increasing the city's wealth, tax revenue, and tying much of the economy of the city to the foreign merchants.
A significant development came in 1834 when reformers (some of whom were financially backed by Jardine) in Britain, advocating for free trade, succeeded in ending the monopoly of the British East India Company under the Charter Act of the previous year. This shift in trade policy ended the need for merchants to comply with the royal charter for trade in the far east; with this centuries-old restriction lifted, the British China trade was opened to private entrepreneurs, many of whom joined the highly profitable opium trade.
On the eve of the Qing government's crackdown on opium, a Chinese official described the changes in society caused by the drug;
At the beginning, opium smoking was confined to the fops of wealthy families who took up the habit as a form of conspicuous consumption, even they knew that they should not indulge in it to the greatest extreme. Later, people of all social strata—from government officials and members of the gentry to craftsmen, merchants, entertainers, and servants, and even women, Buddhist monks and nuns, and Taoist priests—took up the habit and openly bought and equipped themselves with smoking instruments. Even in the center of our dynasty—the nation's capital and its surrounding areas—some of the inhabitants have also been contaminated by this dreadful poison.
In late 1834, to accommodate the revocation of the East India Company's monopoly, the British sent Lord William John Napier to Macau along with John Francis Davis and Sir George Best Robinson, 2nd Baronet as British superintendents of trade in China. Napier was instructed to obey Chinese regulations, communicate directly with Chinese authorities, superintend trade pertaining to the contraband trade of opium, and to survey China's coastline. Upon his arrival in China, Napier tried to circumvent the restrictive system that forbade direct contact with Chinese officials by sending a letter directly to the Viceroy of Canton. The Viceroy refused to accept it, and on 2 September of that year an edict was issued that temporarily closed British trade. In response, Napier ordered two Royal Navy vessels to bombard Chinese forts on the Pearl River in a show of force. This command was followed through, but war was avoided due to Napier falling ill with typhus and ordering a retreat. The brief gunnery duel drew condemnation by the Chinese government, as well as criticism from the British government and foreign merchants. Other nationalities, such as the Americans, prospered through their continued peaceful trade with China, but the British were told to leave Canton for either Whampoa or Macau. Lord Napier was forced to return to Macau, where he died of typhus a few days later. After Lord Napier's death, Captain Charles Elliot received the King's Commission as Superintendent of Trade in 1836 to continue Napier's work of conciliating the Chinese.