The Canton Trade System and its Failure

EDAS8003A Assignment 2
Kay McCullough
The Canton Trade System and its Failure
Introduction
On the first of July 1997, Hong Kong was handed back to Chinese Authorities, ending
more than 150 years of British control. Tung Chee-hwa, China’s first Chief Executive of
the Hong Kong Special Administrative Region, declared:
"This is a momentous and historic day ... Hong Kong and China are
whole again." (BBC News, 2008).
The ceding of Hong Kong to the British in 1843, after China’s defeat in the Opium War
of 1839-42, has long been rued by the Chinese.
This essay traces the origins of the first Opium War by examining the trading system that
operated between Britain and China, known as the Canton System. It discusses the
development of the Canton System and factors that caused frustration for traders, leading
to its abuse with illegal trade. It argues that many problems associated with the Canton
System were due to the late Qing government’s inward-looking disposition, closed-door
policies and distrust of foreigners. China of this period was beset by internal problems
which contributed to the breakdown of Chinese society and the Canton System. The
Opium War might have been avoided with greater intercultural understanding and the
development of productive diplomatic relationships.
Evolution of the Canton System
Europeans regarded China, with its tea, exotic silks, handcrafts and porcelain, as a highly
desirable trading partner. By the late 1690s, European trading ships visited Chinese ports
regularly. With the Portuguese outpost of Macau nearby, the Chinese port of Canton,
known today as Guangzhou, became a target for traders because it offered security and
access to someone who could communicate with the Chinese, even if via Portuguese. In
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1715 the Chinese government declared Canton the only port for foreign trade. English
merchants were first on the scene, eventually joined by French, Dutch, Austrian, Danish
and Swedish East India Companies, as well as `country' (private) ships from India and the
Americas after 1784. (Van Dyke, 2005)
A limited number of government-approved Chinese merchant-wholesalers, known as
Hong merchants, were commissioned to act as brokers for, and supervisors of, foreign
traders. Each ship was allocated to one of these Chinese firms. The Hong merchants
formed a guild, called the Cohong in 1720. All orders and purchases had to be made
through members of the Cohong, at prices negotiated by the Guild with the up-country
suppliers. The Guild answered to the head maritime customs official, known as the
Hoppo. The Cohong and the Hoppo were responsible for taxing the goods traded, both
imports and exports. (Fairbank & Goldman, 2006)
Merchants were required to pay fees to enter and leave Canton, levied according to the
size of the ship. Foreign ships were required to anchor, unload and receive cargoes off the
island of Whampoa, downstream of the city (see Figure 1). Here they also had to hand
over all weapons and gunpowder into Chinese custody. The merchants were required to
build their trading warehouses, known as factories, on a strip of land along the river front
west of the city walls (see Figure 2). The factories also served as traders’ homes. From
October to March the trading season ensued, while outside those months, merchants had
to retreat to Macao or their homeland. (Gregory, 2003)
When a foreign ship arrived, a linguist was appointed to assist with trading negotiations.
The first translators used by the British were Cantonese-speaking Chinese residents of
Macao who also spoke Portuguese. To communicate with officials, they also needed to
be fluent in Mandarin. By the 1730s, a form of Pidgin English had replaced Portuguese.
The British relied on these linguists, who had only a transactional vocabulary. They
acted as mediators between the Hong merchants and the traders, negotiating and
persuading them to reach a trading agreement. (Van Dyke, 2005)
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Figure 1: Map of the delta of the Pearl River, with the Macau Peninsula, Whampoa and
Lintin Islands marked. (from Hanes & Sanello, 2002, p.308)
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From 1760, further restrictions were introduced. Foreign ships were not permitted to
communicate with Chinese people or merchants without supervision and foreign traders
were not to communicate with Chinese officials except through the Cohong. Women,
including traders’ wives, were not allowed in the factories. A maximum of eight Chinese
servants were allowed to be employed in any factory, regardless of size. Foreigners were
not allowed to row boats on the river, nor were they allowed into the city. They could
take recreation on the 8th, 18th and 28th days of the lunar cycle on Honan Island (see
Figure 2) by visiting the Flower Gardens and the Joss-house, but only in groups of ten or
fewer. If they entered other public places, their interpreter would be punished. As well,
foreigners were not permitted to buy Chinese books or learn the language and the
Chinese were also not allowed to own foreign books. (O’Brien, n.d.)
Figure 2: Sketch map of Canton showing the location of the Foreign Factories
(from Clowes, n.d.)
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Frustrations with the system leading to breakdown
As the system evolved, it became increasingly difficult for traders. Apart from the
personal restrictions on traders, trading grew less efficient over time. As the number of
ships increased the number of Hong Merchants and associated service providers did not,
resulting in lengthy waiting periods. While in the early days the Hoppo would deal
directly with traders, as the system evolved, the Cohong became the direct contacts.
With this, traders were denied contact with Chinese Officials and the Officials became
less familiar with the particular issues confronting trade in Canton. (Van Dyke, 2005)
Traders lost all channels of communication to seek change or review of the System.
Traders were required to engage a variety of service providers and general dissatisfaction
with them was evident. For example, a Chinese Pilot was required to allow a
merchantman enter the Pearl River and yet they were unskilled in the role, while shipping
charts provided ample direction. (Davies, 1836) Linguists were another source of angst.
Every trader was able to choose their assigned Chinese linguist, but the choice was
extremely limited, with only five or fewer operating in any year. Linguists were not
supposed to translate anything that might offend, and often feigned ignorance by way of
excuse when communications became vexed. Their services, while necessary, were not
always accurate and many complaints were made by foreign merchants against their
linguists. (Van Dyke, 2005)
With a large amount of responsibility given to a relatively small number of firms,
corruption grew at every level, from the Hoppo to the lowest Customs Officers. Traders
also sought to evade what they saw as excessive port changes. (Davies, 1836)
A smuggling depot at Lintin island (see Figure 1) commenced operation in the early
1820s and illicit trade, largely opium, was fuelled by an 1825 policy that exempted ships
bringing rice and no other goods from all port charges. As John Davies, the Chief
Superintendent in China reported:
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“Vessels accordingly now station themselves at Lintin, laden with rice,
which they sell in sufficient quantities to other vessels, newly arrived,
to exempt them from port charges; while the real cargoes are either
left at Lintin to be smuggled in, or put onboard other ships which fill
themselves up entirely on freight for Whampoa..” (Davies, 1836
p.429)
The British also desired access to a northern port, where the colder climate would make
British woollen products attractive. Inland freight charges made the importation of such
products at Canton uneconomic. (Davies, 1836).
It is testament to the profitability of the Canton Trade that merchants continued to labour
under its restrictions. The next section summarises economics related to British trade at
Canton.
The British East India Company – Tea and Opium
The East India Company was the sole British trading company at Canton, having been
granted a monopoly on trade in Asia. It conformed to Chinese law, traded solely through
the Cohong and acquired a reputation for honesty and fair dealing. (Gelber, 2004)
The Company came to trade in three principal commodities – tea, silk and porcelain. Tea
consumption began as a fashionable drink among British elite classes, quickly spread
through society with the result that tea quickly became the prime British import from
China, as can be seen from Table 1.
In 1813, Customs import duty on tea provided
roughly 10 percent of the British government's annual revenues. By the 1830s, Chinese
tea import duties provided the entire profit of the East India Company. Tea became so
important to Britain that the Company had to keep one year’s supply in stock to avoid
shortages. (Greenberg, 1969)
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Table 1 - Tea Imports to England
From Davies (1836), p 448
Year
British Tea imports (lb)
1734
632,474
1746
2,358,589
1758
4, 205, 394
1768
6,892,075
1785
10,856,578
1800
20,358,702
1833
31,829,619
China’s demand for British goods was small in comparison to Britain’s need for tea, and
Britain was forced to pay for tea with silver, causing the British trade deficit to grow.
The main item China imported was opium. India’s opium fields had been seized by the
British in 1750, and opium began to be exchanged for tea. A trading triangle involving
Britain, India, and China evolved and Britain’s trade deficit began to normalize and,
eventually turn to surplus, because of its opium trade. (Gelber, 2004).
A strong pain killer and effective treatment for tropical diarrhea, opium had been in use
in China from the fourteenth century, brought in by Muslim and Portuguese traders.
Gradually its medicinal uses were overtaken and it became a popular luxury item. By the
1600s, opium, as well as tobacco smoking, was embedded into the recreational culture of
high-ranking Chinese officials.
Prior to 1868, growing, trading, and recreational use of opium was legal in Britain. It was
also legal in China until the first anti-opium edict of 1729 forbade its sale for smoking
purposes, a measure largely ignored.
In 1796 the ban was extended to prohibit
importation. At this point, the East India Company stopped exporting opium directly to
China and, instead, sold it, quite legally, to private merchants, who delivered it to China
for illegal sale. (Feige and Miron, 2005) The Canton System began to disintegrate as
bribes to turn a blind eye to smuggling became commonplace.
Smuggling was a
significant problem by the 1820s, with Chinese administrators, as well as many of the
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Cohong involved in drug trafficking. Instead of enforcing imperial edicts, officials
promoted and exploited opium trade, growing richer in the process. (Gelber, n.d.).
Table 2, shows estimates of illegal opium imports into China. The true amount of opium
that entered China in the early 1800’s will never be known as by this stage, opium was
coming in from America and also being grown in China, although British shipments
dominated.
Table 2 Opium shipments to China 1830 – 39
(summarised from Zheng, 2005, p.93)
Trading Season
1830/31
1831/32
1832/33
1833/34
1834/35
1835/36
1836/37
1837/38
1838/39
Total number of chests
19,956
16,550
21,985
20,486
21,885
30,202
34,276
34,373
40,200
A chest of opium contained between 130 and 140 pounds of product. This puts the illegal
quantity smuggled into China for 1838/39 at between 2370 and 2553 tonnes, an
enormous quantity. Figure 3 illustrates the scale of warehouse storage of opium balls in
India.
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Figure 3. An opium storehouse in India belonging to British merchants, c.1839.
(from Guan, 1987, p26)
While the British have been accused of ruining China by flooding the market with opium,
had there been no demand, the trade could not have flourished. With the Chinese
economy in recession and silver flowing out of the country to pay for opium, in 1839 the
Emperor assigned Commissioner Lin Tseh-hsü, a Mandarin known to be incorruptible,
the task of suppressing the opium trade. After seizing and destroying large quantities of
British opium, Lin adopted measures which put British traders’ lives at risk by preventing
food shipments to British ships and poisoning their water supplies. (Waley, 1958) The
Opium War, beyond the scope of this essay, broke out in the same year.
Many questions arise out of this narrative. Why did China adopt essentially a closed-door
policy to the West? Why was there such a demand for opium and why was no effective
action taken to prevent opium smuggling? To explore these questions, the political
context of the times must be considered, together with an attempt to discuss the Chinese
perspective on these issues.
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Chinese society – beset by problems
A result of the peaceful rule of the early Manchu Emperors was population growth, as
shown in Table 3. Until the mid 1700s, population growth had been paralleled with
economic growth. After that, food production could not keep up with the needs of the
burgeoning population. All arable land was under cultivation and as the population
increased, the amount of land per family farm decreased. The standard of living dropped
generally and poverty fuelled internal migration to cities, unemployment and social
unrest. (Fairbank & Goldman, 2006)
Table 3 Population of China 1770 – 1840
Statistics from the Ministry of Revenue in Peking
Source: Chesneaux, Bastid and Bergere, 1977, p 47
Year
1770
1780
1790
1800
1810
1820
1830
1840
Estimated Population
213,613,163
277,554,413
301,487,114
295,273,311
345,717,214
353,377,694
394,784,681
412,814,828
Corruption evident in the Canton System became endemic throughout society, with
mandarins and district officials levying additional taxes, taking bribes and manipulating
exchange rates between rice, silver and copper cash to their benefit. This worsened
conditions for the poor and reduced imperial revenue. Secret societies became very
active, attracting discontented peasants seeking outlets for their anger. These underworld
gangs bribed and terrorized the population. Public services declined and infrastructure,
such as dikes, canals and granaries, fell into disrepair. As well as peasant revolts, famine
and natural disasters occurred more frequently. (Chesneaux, Bastid and Bergère, 1977)
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As the quantity of opium smuggled into China increased, its price decreased, making it
more accessible to poorer classes in society. Figure 4 illustrates the plummeting prices of
Opium after the early 1820s.
Figure 4. Graph showing the price of opium exports in India.
(from Feige and Miron, 2005, p9)
China’s legal archives indicate that lip service was paid to Imperial Edicts, with poor
migrants from other provinces most likely to be prosecuted for opium offences, while, in
the main, opium smokers and dealers eluded prosecution because of their connectedness
to police, who turned a blind eye to their activities, or through intimidation from
members of secret societies associated with the black market. The Chinese Government
was clearly ineffectual in its internal war against opium. (Macauley, 2009)
The spread of opium can be understood in the social context of widespread administrative
corruption and active criminal networks. Opium smoking provided an escape from the
harsh realities of daily life for many Chinese in such troubled times and opium became
more accessible as the market was flooded with the product.
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A clash of cultures perpetuated by a closed-door policy
During her long history, China had always been at the centre, the Middle Kingdom, a
civilized world surrounded by inferior cultures. Ruled by the Son of Heaven and bound
by Confucian ethics, Chinese society was seen to approximate the natural order of the
cosmos. The Five Relationships, subject to ruler, wife to husband, son to father, younger
to elder brother and friend to friend, underpinned society. Confucian society was
hierarchical, with scholar-officials most superior, then farmers, artisans and, most lowly,
merchants. (Fairbank, Reischauer and Craig, 1965)
Countries that traded with China were considered tributaries, bearers of gifts; a small
price to pay for contact with the Middle Kingdom.
The Chinese tribute system involved
symbolic rituals, including the kowtow, which were regarded as ‘good manners.’ The
Chinese put the modern West into this category, expecting them to be humble and
submissive to the Emperor, who was benevolent towards those from afar. (Pritchard,
1943)
In 1793, Lord McCartney conducted Britain’s first diplomatic mission to China. His
agenda was to negotiate a treaty of commerce, establish a resident diplomat, extend
British trade to other ports, improve the organization of the Canton trade and gain place
near Canton where British merchants might be able to stay all year, under protection of
British justice. (Hibbert, 1970) None of the objectives were achieved, although he was
granted an audience with the Emperor. Lord Amherst, who visited in 1816 was also
unsuccessful. Neither ambassador was prepared to cast Britain as a tributary nation; this
may have represented a significant breach in protocol to the Chinese. (Pritchard, 1943)
With the dissolution of the East India Company’s monopoly in 1834, Britain appointed
Lord Napier as Chief a Superintendent of Trade at Canton. With no experience in
diplomacy, and no previous contact with Asia, his clumsy and culturally insensitive
attempts at engaging with the Chinese inflamed an already troubled situation. (Hibbert,
1970) Chinese and Western cultures clearly clashed in these diplomatic debacles.
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The Confucian view of trade as a lowly activity may have influenced the choice of
Canton as international trading port. Situated far in the south and distant the capital at
Peking, Canton’s location was an expression of the lack of importance foreign trade in
the eyes of the Chinese, as well as its preference to keep foreigners at a distance.
The extraordinary restrictions on the Canton merchants suggest that the Chinese were
deeply suspicious of foreigners. Fairbank (1969) interprets this xenophobia as the
response of an elite class that had been trained to treat those who acted like Chinese as
Chinese, but those who didn’t as barbarians.
By the early 1700s, China was largely self sufficient. The size and diversity of China’s
regions ensured a variety of produce and with navigable waterways a complex network
of domestic markets had developed. It has been estimated that China’s domestic trade
market was bigger than the total European trade market of the time. (Fairbank and
Goldman, 2006) The closed-door approach may have been a result of the Chinese
believing that they had little to gain and much to lose by opening its door to Western
traders.
It is contended that China’s closed-door policy was a significant reason why the clash of
cultures continued, and the policy had the unintended consequence of preventing the
Chinese from gaining knowledge about the West.
By delegating interaction with traders to the Cohong, Chinese officials lost the
opportunity learn about the West. With little contact, their views were uninformed.
Commissioner Lin’s journal, for example, revealed a widespread Chinese belief that
foreigners would die of constipation if deprived of rhubarb as well as bizarre ideas about
ingredients used to prepare opium. (Waley, 1958)
Chinese literature of the early
nineteenth century indicated a lack of geographical understanding about the world
beyond China, confusion about western nations. (Fairbank et al, 1965)
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The ban on language learning prevented the development of mutual understanding.
While traders were able to get by with limited language resources, diplomacy required
much greater knowledge of subtle meanings in language as well cultural knowledge.
China’s closed-door policies worked against the development of these understandings
and prevented productive diplomacy.
Conclusion
China’s self sufficiency made it a reluctant a reluctant trade partner with the West, and
the highly restrictive Canton system was devised to keep foreigners under control. The
system worked well for China as she profited from trade in tea, silk and porcelain, while
maintaining minimal contact with the West. The legal opium trade was part of the
Canton System until it was outlawed in 1796.
Internal decline was driven by a burgeoning population and an economy that was unable
to keep pace. Massive poverty and internal corruption fuelled rebellion and crime. A
network of secret societies took over the distribution of opium after it was banned and
illegal opium imports increased dramatically. Frustrated with the Canton system, British
traders took part in illegal trade with abandon, as it was extremely profitable and poorly
policed. Opium became cheaper and addiction at all levels of society occurred.
The
Chinese were unable to control illegal opium use in their society.
Real difficulties in communication, exacerbated by the Qing’s closed-door policy and
edicts that forbade language learning prevented effective diplomacy and the cultures of
China and Britain continued to clash through lack of mutual understanding. These
policies worked against their makers, as the Chinese remained largely ignorant of
Western capabilities. One has to wonder whether the Opium War would have occurred if
China had opened its door to the West.
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