Books

Grove Press
Grove Press
Grove Press

The China Dream

The Quest for the Last Great Untapped Market on Earth

by Joe Studwell

“An entertaining, if cautionary, tale of Western business woes in China, stretching back seven hundred years and including, naturally, the woes of recent years.” —Peter Wonacott, The Wall Street Journal

  • Imprint Grove Paperback
  • Page Count 416
  • Publication Date April 25, 2003
  • ISBN-13 978-0-8021-3975-7
  • Dimensions 5.5" x 8.25"
  • US List Price $15.00
  • Imprint Grove Paperback
  • Publication Date December 01, 2007
  • ISBN-13 978-0-8021-9928-7
  • US List Price $15.00

About The Book

In The China Dream, acclaimed business journalist Joe Studwell challenges the predictions that China will become an economic juggernaut on the world stage in the twenty-first century—and instead foresees an economic crisis. Tracing the most recent developments in China from Deng Xiaoping’s “liberalization” of its market in the 1980s through the opening of its economy to foreign investment in the 1990s, Studwell examines the roadblocks to the continuation of the country’s unprecedented expansion and why its economy will fail once more—but this time, harder than ever before, and with potentially catastrophic results.

Provocative and flawlessly researched, The China Dream analyzes what’s really going on in China—and what we can do to prepare for the coming crisis.

Praise

“An entertaining, if cautionary, tale of Western business woes in China, stretching back seven hundred years and including, naturally, the woes of recent years.” —Peter Wonacott, The Wall Street Journal

“Excellent and well-written. . . . Studwell is both illuminating and amusing.” —Paul D. Aligica, Indianapolis Star

“This is a book that lays bare much of the stuff and nonsense that surrounds the China dream, and traces how myth and misunderstandings—compounded by hype and lashings of snake oil—have bewitched some of the world’s most respected corporations and led them to ruin the proverbial $1.3 billion consumer market. . . . As such, it deserves to help redefine the debate on the nature of the China market.” —James Kynge, China bureau chief of the Financial Times

“China may yet come to rival Dutch tulips and dotcoms. . . . Outsiders’ dogged faith, with or without rational basis, in the untold and imminent riches to be had in China has a history. This chronicle of that history makes sobering and essential reading.” —Andreas Kuth, Asian business correspondent of The Economist

“This book will cause blushes in boardrooms around the world.” —David Murphy, Beijing correspondent of the Far Eastern Economic Review

“The value of [Studwell’s] book is that it helps the reader move away from the traditional framework that the outside world usually applies to China.” —Stephen F. Diamond, Dissent

“[A] detailed account . . . An excellent examination of the political and economic history of China, fascinating and mostly unknown to Westerners.” —Booklist (starred review)

Excerpt

1 — The dream through history

“Merçacciones innumeras [an incalculable amount of trade]” —Margin annotation by Christopter Columbus in his copy of Marco Polo’s Travels, an account of his time in China.

The story of the western world’s commercial fascination with China dates back more than 2,000 years and it began with a product that still symbolises the relationship—silk. The Chinese fabric spun into a sensual, thin gauze first became familiar in Rome around 50BC. Cleopatra, mistress of Julius Caesar and Mark Antony, and queen of Egypt, was among the first to promote a fashion for transparent dresses in the exotic fabric. Despite the outrage of sartorial conservatives—the writer Seneca railed against the wearing of such dresses in the Roman capital, “clad in which no woman could honestly swear she is not naked”—by the end of the fourth century, silk was a universal accoutrement in civilised society throughout the empire.

Silk is one of those rare traded commodities that is capable of stirring the imagination.

It also gave rise to the first great myth of the China trade—the perception of the “silk road” as the principal commercial avenue of antiquity. At the height of European colonialism in the nineteenth century, archaeologists uncovered the flotsam of ancient trade between China and Europe along a series of routes through north-west China, central Asia and northern Persia to ports in Syria and along the Black Sea. From these discoveries derived an image of a collective silk road along which a large and regular trade was being conducted. While there is no doubt the silk routes were traversed at the time of the Roman and Han empires (which roughly coincided), more recent scholarship suggests the trade has been much exaggerated. The enormous cost of land transport in the pre-modern era (twenty to forty times that of sea freight), the thousands of miles traders had to cover, and their vulnerability to attack—both physical and fiscal—make it highly improbable that large-scale exchanges occurred. Rational analysis says that most silk travelled by sea from southern China to the Malay peninsula, where it was purchased by Arab and Persian middlemen who forwarded it to Europe. The romantic image of camel trains trudging 3,000 miles through sand storms across the silk routes of central Asia is largely just that—movie material.

But, if the classical silk road owes as much to imaginative fallacy as to historical fact, other aspects of China’s pre-modern relationship with the outside world have been understated. Three hundred years after the fall of the Han dynasty (206BC-AD220), China produced a supremely confident civilisation of an extraordinarily cosmopolitan nature. The first, or “golden” era of the Tang dynasty (618-907) was built on a level of internationalism that was not reached again until the forced opening of China in the nineteenth century—and arguably still not then. The Tang epoch is known today for its exquisite statues and porcelain, among the most highly prized remnants of Chinese history. Less well known is that the roots of the dynasty’s cultural outpouring lay in a society which combined Indian Buddhism, the courtly pastimes of Iran and a commercial inquisitiveness towards foreign goods and services with Chinese leadership in political organisation, technology and agricultural productivity. At the beginning of the Tang period, when Europe was plunged deep into the Dark Ages, China was so far ahead of the rest of the world that it needed nothing from it. Yet the dynasty remained so hungry for more that it borrowed freely from outsiders, with no apparent sense that this could ever involve a loss of national face. Tang China was too dynamic a place to care. It was, perhaps for the only time in history, just what the characters of China’s name claim: the “zhong guo,” or “middle kingdom”—the realm around which every other civilisation rotated.

In the era of the Golden Tang emperors, an estimated 25,000 foreigners lived in the capital, Xi’an, in the centre of the country. Many more, quite possibly over 100,0005—Moslems, Christians, Jews and Zoroastrians—were based at Guangzhou and Quanzhou at the junction of China’s key southern sea routes. The foreigners were the main facilitators of an international trade in which the outside world received far more useful products and ideas than China did in return, but in which the principle of interchange was paramount. Many leading Tang dynasty figures were foreigners—Turks, Afghans, other central Asians and Koreans. Xuan Zong, one of the greatest of the Tang emperors, took a dancing girl from Tashkent, Uzbekistan, as a concubine and princess.

The Golden Tang period was a true golden era. The most sophisticated and open society in the world, it bred wealth. China boasted more than two dozen cities with populations of over half a million at a time when large urban centres in Europe counted their inhabitants in the tens of thousands. Two million people lived in Xi’an. With agricultural yields up to four times the global norm, few went hungry. For the well-to-do, success brought with it an early form of the international playboy lifestyle—thoroughbred horses, hawks, polo, chess, silk, spices, aromatics and porcelain.

This cosmopolitanism, however, was not to last. For Tang China never fully overcame the xenophobic instincts of its baser subjects. In the late eighth and ninth centuries, the dynasty was weakened by rebellions, the rise of regional potentates and greater corruption, all coinciding with natural disasters that led to higher prices and increased inequality. In these more straitened times, anti-foreigner sentiment was roused. There was a massacre of foreign merchants by rebels at Yangzhou in 760. Trade recovered but, in the next century, the same latent, conservative forces built up to a greater massacre at Guangzhou, in 879. A fading regime lost confidence in cosmopolitanism and became a convert to prejudice. Foreign religions—including the Buddhism that historian Samuel Adshead believes gave Tang China “a critical philosophy hardly surpassed in the West till Descartes”—were banned and persecuted. Tolerance gave way to paranoia and fear of outsiders. When the Tang dynasty fell in 907, there ended a brief flowering of pluralism that even now, well over a thousand years later, has not been approached again.

By the time the first western accounts of the country were being written in the thirteenth century, China was a civilisation past its peak. The problem was that while China had all the trappings of wealth and sophistication, it was no longer acquiring the means of further progress. The Chinese were becoming increasingly introverted and, with just a few exceptions, losing interest in what could be garnered from the wider world. Europeans, by contrast, acquired from China between the eleventh and the fourteenth centuries the critical technologies of modernisation: designs for multimasted ships with fixed rudders; the magnetic compass; blast furnaces for the complete liquefaction and casting of iron; advanced hydraulics; gunpowder; and the “escapement,” the key component of clockwork. China took almost nothing in return that could help her retain her lead over the world. The Song dynasties (960-1279) were an era of what has been called with reference to the twilight of the British empire “splendid isolation”—from the cultural and political life of the rest of the world. China had her majesty but, in a tradition that continues to this day, her grandeur no longer indicated dynamism.

The earliest foreign commentators, most famously Marco Polo, however, had no sense of this, since China continued to enjoy a huge commercial, scientific and cultural lead over European societies. Polo, who came from Venice, Europe’s largest city with 160,000 inhabitants, probably spent twenty years in China between 1275 and 12959. He passed a lot of that time in Hangzhou, capital of the Southern Song dynasty, with six million inhabitants. There was no comparison. As he describes at length in his Travels, Europe and China were worlds apart—in terms of urbanisation, sea power, consumerism and aesthetic taste. He wrote of the Yangzi river, the great Song trade artery, that “the amount of shipping it carries and the bulk of the merchandise that merchants transport by it, upstream and down, is so inconceivable that no one in the world who has not seen it with his own eyes could possibly credit it.” Other medieval commentators concurred. Oderic of Pordenone, also an Italian, said of Guangzhou: “All Italy hath not the amount of craft that this one city hath.” The Arab traveller Ibn-Batuta, who compared the Yangzi with the Nile, and China with the wealthiest states of Eurasia and Africa, concluded: “Nowhere in the world are there to be found people richer than the Chinese . . . porcelain in China is of about the same value as earthenware with us, or even less.”

In the late thirteenth and fourteenth centuries, during the Yuan dynasty (1271-1368), China’s wealth, and a series of European and Asian refugee crises created by the Mongol invasions, brought more foreigners on to Chinese shores than at any other time prior to the nineteenth century. Along its southern sea trade route, China was a huge importer of pepper and other spices from the Middle East and Africa, and foreigners were involved in this trade. Polo, who returned to Europe by the southern sea route, claimed that for every one spice ship travelling from Alexandria to Christendom there were a hundred heading for China. There were at least two established Italian trading communities with bases in the country—the Venetians and the Genoese—although the biggest commercial exchanges in terms of numbers of traders were with Moslems from central Asia.

The oceanic revolution, bad maps and unfriendly emperors

None the less, while the more adventurous fourteenth-century European merchant communities were familiar with China’s thriving economy, they were not in a position to exploit it on a large scale. This could happen only with the oceanic revolution of the late fifteenth and sixteenth centuries, when, having recovered from the Black Death, European countries equipped themselves with the kind of large ships that the Chinese had been sailing for hundreds of years. Europe’s maritime explosion, which began in Portugal and Spain and spread north to England and Holland, coincided with its application of another ancient Chinese technology: printing. In 1485, the first copies of Marco Polo’s Travels appeared. Christopher Columbus, the greatest of the early European adventurers, soon learned of the book’s contents and decided that China was where he must go. Columbus’s own copy of the Travels is filled with more than a hundred margin notes about the gold, silver, silk, spices, porcelain, precious stones and fine wine to be found there.

Unfortunately, Columbus missed his target. Sailing west from Spain, he hit upon an unknown and unexpected continent—America. The China mission was thereby diverted as the Spanish conquistadors set about extracting the booty of what became Latin America. It was the Portuguese who, following Vasco da Gama’s 1498 voyage eastwards round the Cape of Good Hope, arrived sooner in the Chinese orbit. But they were driven by their own get-rich-quick dream that was built around a commodity—spices—rather than a place, their interest in China being that the country was the single biggest spice buyer in the world. The Portuguese wanted to handle the business and, in 1511, seized Malacca, a key spice trade entrepôt. The plan from here was simple: go to the Chinese and negotiate trading rights. It was a plan that would fail to bear fruit for the next three centuries.

China was by now a place far removed from the cosmopolitan, mercantile empire of the Tang emperors, or even the Song dynasty described by Marco Polo. In 1368, following a long period of civil insurrection, the Ming dynasty came to power, founded by a preacher turned regional warlord, Zhu Yuanzhang. The Ming state was populist and anti-capitalist. Although early Ming was also expansionist, creating an Indian ocean empire of tributaries, this was not driven by any love of trade. When the Portuguese sent a diplomatic delegation, led by Tomé Pires, to what was now the Ming capital of Beijing in 1520, they found themselves talking to an empire uninterested in doing business. Pires was told Portugal must vacate Malacca—a Chinese satellite—and forget about trading with China. When he had the temerity to suggest that Malacca now belonged to Lisbon, he was locked up in a Guangzhou jail until his death in 1524.

The Portuguese were rebuffed in further attempts to trade at Guangzhou and Ningbo, but they eventually tempted local officials, with the cash to be earned from trade, into letting them settle on the Macau peninsula. Macau became the first “Hong Kong,” an insular, isolated empire’s window on the outside world. When Malacca fell to the Dutch in 1641, the more commercially aggressive Dutch East India Company thought to expand the China trade through a series of points of entry. But the Dutch navy was unable to deliver militarily, failing to take Manila in 1617 and Macau in 1622 and subsequently being kicked out of Taiwan by the Ming in 1662. Dutch diplomatic efforts to negotiate trade openings at Guangzhou and Xiamen received the same short shrift that the Portuguese had encountered.

By a curious turn of events, the single most significant route for China trade in the sixteenth century ended up in the hands of the successors of the explorer who had first set out there. After Columbus made landfall in the Americas, Spanish sailors discovered in the course of the next half century that the Pacific current and north-east trade winds would carry them from Mexico to Manila, while further north the westerlies would bring them back from Japan to California. While Mexico had silver, China had silk and other luxury goods prized by the conquistadors and Manila was a convenient off-shore centre from which to do business away from hostile Ming officialdom. From the mid-sixteenth to the mid-seventeenth centuries this trade was small scale but regular and profitable. Records from Manila in the 1630s show that around twenty-five large Chinese junks a year made the trip from Guangdong and Fujian provinces.

European trade in the Far East via the Cape and routes originating in the eastern Mediterranean increased by a factor of about ten in the sixteenth century, but from a very low base. On top of this was the Pacific trade. The mainstay of Chinese exports continued to be silk in all its guises, with the addition of more porcelain, medicinal rhubarb root and the first shipments of tea, which was originally sold as a tonic. The China trade was not insignificant, but it was far less important than might be expected from a nation of 150 million people that was still unsurpassed in terms of technological and cultural sophistication, literacy and per capita income. And China bought almost nothing in return for its sales. Chinese exports had strong symbolic value—attested by the porcelain collections of Philip II of Spain and other, lesser European rulers, or the silk tents of Middle Eastern potentates—but they did not add up to much in terms of global impact. It was Spain, not China, that created the first worldwide commercial empire. The Ming rulers of the sixteenth century let their deep sea fleet rot in Nanjing, reduced the size of their army, appeased their neighbours and looked inwards, rejecting the kind of discursive reason and culture of discovery that was taking hold in Europe in favour of an ever-narrower, anti-theoretical Confucianism. China’s potential as a trading partner for the west remained unfulfilled.

Souls, forecast sales and Chinese diplomacy

Potential is a currency of sorts—and one that, despite repeated disappointments, has kept foreigners lined up at China’s gate throughout history. The first true China interest group emerged in the Renaissance era when the prospect of a single market of 150 million souls hooked the evangelistic ambitions of the Jesuits. China, from the mid-sixteenth century, became the Society of Jesus’s biggest theatre of operations. The organisation sent its best people—most famously Matteo Ricci, but many other powerful organisers and intellectuals as well. With so much of their own time and effort invested, and dependent on continued financial support from Europe, the Jesuits in China wrote enthusiastically about their experiences. Two Ricci essays published in Europe in 1616 contrasted the good order of the empire with the religious and political chaos of Europe—an argument that would recur at the end of the twentieth century as western businessmen contrasted the apparent stability of China with the chaos of the newly democratised nations of the former Soviet Union. Yet reality for the Jesuits on the ground was little different from that for their commercial counterparts. The market was nothing like as hot as they hoped—they made only a few conversions, slowly—and outside the Chinese élite they were far from welcome.

In 1644, the Ming dynasty fell and was succeeded by the Manchu house of Qing. The new, pony-tailed rulers decided to allow foreign delegations to visit Beijing, an apparent opening that led to much international diplomatic activity. The Russians sent a mission from 1653 to 1656, the Dutch in 1668 and the Portuguese in 1670. When the Chinese proved ambivalent about trade treaty requests, the Russians tried another visit from 1675 to 1678, the Portuguese in 1678 and the Dutch in 1687. Even the Papacy, stirred by Jesuit tales of souls for the saving, sent two envoys in the early eighteenth century. In every case, the leaders of the European delegations dispensed with familiar diplomatic rituals and did the nine prostrations of the kowtow—the required act of ritual abasement—before the Chinese emperor. This produced a poor return. No trade concessions were granted as a direct result of these visits. Only the Russians, whose Cossack horsemen were threatening China’s northern border by the Amur river, were granted the right, in 1689, to send caravans to Beijing in order to exchange furs for silk.

Although the Qing had their moments of international and intellectual curiosity—they legalised Catholicism and allowed the Jesuits to become their court technicians—the kowtowing trade ambassadors sought a liberalisation too far. Its sense of superiority reinforced by the obsequious supplications of the westerners, Qing China continued in its insular ways, leading to a gradual decline relative to a rapidly modernising world. At its peak, the dynasty was successful militarily—expanding China’s borders to the north and north-west so that the empire encompassed 5 million square miles (more than in the Tang era). But size did not go hand in hand with quality. While the emperor ruled autocratically and ever more arcanely with his grand council, European governments were leveraging their power through central banks, national debt markets and more efficient taxation. There was more pluralism in Qing society than in modern communist China—with literary societies, local improvement boards and private banking networks—but it was far removed from the complexity that had evolved in Europe, with its competing churches, universities, corporations, stock exchanges, royal academies, literary, philosophical and professional societies, libraries, publishing houses, clubs and so forth. Still, the more that China sank, the more the Europeans seemed obsessed with it as a market.

In the course of the eighteenth century, the emergent global power of the era—the British empire—turned its gaze on China. With Qing expansion and a high birth rate, the Chinese population doubled from 150 million in 1600 to 300 million in 1800. To the most commercially driven power in history, this market demanded to be traded with. Relations began badly when George Anson, a British commodore, quarrelled with the authorities at Guangzhou in 1743 when his man-of-war entered the port in need of repairs and he refused to accept the Chinese demand to pay customs duties.

Five decades later, however, Britain returned with a formal, closely calculated and extremely expensive effort to develop commercial ties. The visit of George Ill’s ambassador, Lord Macartney, to the emperor Qian Long in 1793 was the first mega western trade mission to China—he was accompanied by a 700-strong party of officials and businessmen that was not exceeded even by the jumbo jet American, French, German, Canadian and British delegations that were to follow in the 1990s. Macartney was an experienced and successful diplomat. He represented a pantheon of commercial interests and brought with him an array of modern, European technologies designed to impress an ageing emperor: telescopes, globes, barometers, lenses, clocks, airguns, swords and a complete carriage. But whereas in the 1860s the Japanese would be jolted into a political and economic revolution by the contemplation of western military and scientific prowess, Qian Long dismissed the offerings as “amusements for children.” He told Macartney, in one of the best-known lines of modern Chinese history, that China had not “the slightest need of your country’s manufactures.” Qian Long was living on hubris. He governed an empire of plummeting literacy, falling productivity, shrinking cities and scientific stultification that proposed to defend itself with war junks of one-sixth the displacement and one-sixth the armoury of the vessels that now came out of Europe. But there was nothing Macartney could do. By the end of his visit, the English emissary was exhausted. He spent weeks haggling over diplomatic protocol—refusing, as a respresentative of George III, to perform the kowtow—and left China with nothing to show the investors of his mission.

Inscrutable China, drugs and the arrival of America

By the end of the eighteenth century, with the beginnings of globalisation and rising literacy, international opinion about China was far more informed than at any point previously. Yet the world was unable to arrive at a coherent view of the country. Observers divided into three camps that are still in evidence today: a sceptical minority, an unchastened, ever-hungry commercial lobby and a more culturally focused group that developed and mythologised a cult of Chinoiserie.

The early sceptics included Macartney himself, who concluded that China’s efforts to overawe the world “merely by her bulk and appearance” would come unstuck. The theme of Chinese arrogance and her false sense of superiority was taken up by writers like Daniel Defoe, who wrote of “their contempt of all the world but themselves,” and Montesquieu, who concluded that the Jesuits had been hoodwinked: “the missionaries were deceived by the appearance of order, not its reality . . . China is a despotic state whose principle is fear,” he wrote. Even Voltaire, schooled by the pro-China Jesuits, observed that the emperor cared nothing for the world beyond his borders while his empire seemed fixed in time.

For the commercial lobby, however, China’s vast size and population—plus, perhaps, the fact that traders were constantly being spurned—convinced them there had to be a great market waiting to be tapped. In the course of the eighteenth century, the discovery of a new commodity export from China—tea—further whetted the appetite of global commerce. By 1800, Europe was importing more than 10,000 tons of Chinese tea a year; by 1830, more than 20,000 tons. The problem was that the Chinese still imported almost nothing in return. In order to pay for its tea, the British East India Company began shipping raw Indian cotton to China. When this did not cover the costs, it added consignments of opium.

Much that is misleading has been written about the Chinese opium trade. The drug, Middle Eastern in origin, spread from being used medicinally to becoming a social accoutrement in Qing China that symbolised the ability not to work and thereafter found a new constituency among working-class labourers attracted to a stimulant that also staves off hunger. The spread of opium use in China, predominantly in the nineteenth century, presented a mirror image to the spread of tea in Europe—from tonic to social lubricant to large-scale consumer good. Although opium was less diffused than tea, like tea, its consumption was driven not by supply but by demand. By the 1830s, the China drugs trade—tea and opium—helped lift the displacement of foreign shipping entering Chinese ports to 200,000 tons—perhaps 300 ships—per year. This represents a five- to tenfold increase on trade in the Elizabethan age, though it is still far from impressive in global terms.

The biggest trading at the time took place in perceptions—informed and imagined. The Enlightenment era witnessed the rise of intellectual Sinophilia and a fashion for Chinoiserie that has never since disappeared. Late eighteenth- and early nineteenth-century Europe based its pagodas, wallpaper and decorative Rococo style on Chinese design. Production of porcelain began at Meissen, s’vres and Plymouth. The basic ingredients of the modern European garden were also taken from China. Britain’s Royal Horticultural Society was founded in 1804 and within a few years its agents were bringing Chinese plants home. Wistaria, rhododendrons, clematis and roses—all were either direct imports or Chinese hybrids. The writer Oliver Goldsmith made his name in the 1760s with a newspaper series, followed by a two-volume novel, The Citizen of the World, about a Chinese scholar living in London and the adventures of his son in Asia. Economic thinker Adam Smith’s description of the division of labour in the Wealth Of Nations was influenced by what he had read of the division of labour in Chinese porcelain production. China loomed far larger in the western mind than it did in western trade—another consistency with the present. The country was popularly perceived as a living version of Ancient Egypt, although even more laissez faire and liberal. The reality on the ground, however, was that China’s cultural decline continued while rising folk religions and rural alienation presaged the civil wars of nineteenth century.

A new factor in China’s external relations at the end of the eighteenth century was the arrival on the scene of the United States. The first American ship to enter Guangzhou, the Empress of China, docked in 1784. The commander, Major Samuel Shaw, returned home claiming a 30 per cent profit from selling New England ginseng and furs and the visit heralded a short Sino-American boomlet in fur trading, particularly of sea otter pelts. In 1805, forty-one US vessels were recorded as having come to trade at Guangzhou. With the decimation of the American sea otter by the 1820s, however, the business declined.

In the middle of the nineteenth century, geopolitical changes in the Americas began to mark out the terms of a future Sino-US relationship. Following the war with Mexico in 1848, the US annexed California and was transformed into a Pacific nation. There was a west coast land rush, a railway boom and the importation of tens of thousands of indentured labourers—particularly Chinese—to undertake low-paid manual work. In the 1850s, Commodore Perry of the US navy sailed to Japan; in 1867 the American government purchased Alaska; and in 1898 it seized the Philippines. The nation stared out across the Pacific ocean and the biggest thing it saw on the other side was China. The first US diplomatic mission to Beijing, that of Caleb Cushing, was despatched by President John Tyler in 1843. Cushing was sent to seek a treaty to put trade on a formal footing, “So that,” in the words of a letter from the President, “nothing may happen to disturb the peace between China and America.” From the outset, US approaches to Beijing were couched in terms of friendship and mutual interest that aimed to set America apart from the increasingly aggressive European powers.

Despite this, Cushing was no more successful than European diplomats in securing trade privileges. American merchants endured the same problems as their Old World competitors. Chief among these was that the Chinese were reluctant to buy anything from them. In order to pay for the tea, silk, nankeen cloth and porcelain they wanted, the Americans found they could sell sea otter skins, seal pelts, sandalwood and certain other exotic natural products, such as New England ginseng, but the income was never enough and bills had to be made up with precious silver coins. It was to avert an excessive use of silver that Americans also began to ship opium to China. The near impossibility of selling anything but opium—and even this became more difficult as domestic production increased—sent Sino-US trade into four decades of stagnation and decline from the 1860s.

Gunboats and gold rush: the limits of European patience

While Washington hoped to court Beijing with expressions of brotherliness and effusive friendship, by the mid-nineteenth century the Europeans had lost patience. Unwilling to walk away from the elusive Chinese prize altogether, but unable to persuade the Qing government to deregulate trade of its own volition, European strategy moved towards gunboat diplomacy. In the wake of the two so-called Opium Wars, four coastal cities were opened to international settlement by the treaty of Nanjing in 1842, and a further eleven by the treaty of Tianjin in 1858. Britain seized the island of Hong Kong, while the Russians availed themselves of a large chunk of Manchuria, in the north-east, through the convention of Peking in 1860. By 1864, following international pressure, missionaries had been granted the right to buy land for mission stations throughout China.

From the 1860s, foreign encroachment and serious domestic rebellion did push the Qing dynasty into a belated modernisation drive. The state expanded, Beijing ministries were strengthened, the tax regime improved and tax-income increased. Trends to micro-farming and illiteracy were temporarily arrested and the populations of China’s big cities increased. A more business-friendly environment saw the rebirth of Chinese private enterprise in cities like Tianjin and Shanghai. Entrepreneurs, and returned students and overseas Chinese, set up business partnerships, stock markets and chambers of commerce. A professional class, including engineers, doctors, geologists and publishers, started to emerge. There were here the beginnings of a modern China—urban-based and in communication with the outside world. But at the same time, the countryside, where the vast majority of the population lived, was being left far behind and a huge counter-élite of landlords, rural mafiosi, shamans and warlords promised trouble ahead.

International trade increased considerably in the mid nineteenth century, but still from a low base. The tonnage of foreign shipping passing through Chinese ports each year rose from 200,000 tons in the 1830s to 7 million tons in 1864. In the 1860s, the China trade continued to be dominated by two commodities, tea and opium. In 1867, tea constituted 59 per cent of Chinese exports and opium 46 per cent of imports. The tea trade rose to around 25,000 tons of shipped product a year. By contemporary global standards, China’s trade remained paltry; it is indicative that the majority of the tea was consumed by one tiny country—England. When silk is added to tea to make up more than nine-tenths of Chinese exports, China can be seen clearly for what it still was in the 1860s: commercially, a three-product proposition.

It was in the last decades of the nineteenth century that trade volumes increased to more significant levels. The opium business reached a peak in the 1870s, tea in the 1880s and China also discovered a second bulk import it was willing to pay for—Manchester cotton, a mass-market textile made affordable by the invention and application of the cotton gin. By the 1890s, China was also buying grain, cigarettes, kerosene, scrap iron, coal and dyes and exporting new commodities such as soya beans, sesame and wood oil and low-grade consumer goods like matting and bristles. It began to look as if the miracle market was finally opening up. In 1905, the displacement of foreign shipping entering Chinese ports hit 72 million tons—a tenfold increase on four decades previously.

The foreign business community, with heavy backing from its various governments, scrambled to support and nurture this trade. The British navy suppressed pirates up and down the China coast. Cartographers mapped the shoreline. A joint Chinese and foreign customs service constructed lighthouses and buoys and dredged the Shanghai and Tianjin estuaries. There were joint pilotage and quarantine administrations. The Jesuits set up a typhoon warning system in Shanghai. In short, the world readied itself for a great deal of business. Between 1890 and 1930 there was the most sustained effort to unlock the China market in the pre-communist era.

By this time, there were powerful, global industrial imperatives demanding that China be brought into commercial play. In the late nineteenth century, the process of industrialisation in Europe and the United States reached a level where overseas markets were critical to further expansion. The Manchester cotton mills were but one example: there was no way that the results of their mechanised production could be consumed solely within the British Isles. As an English writer famously observed in the 1840s: “If we could only persuade every person in China to lengthen his shirttail by a foot, we could keep the mills of Lancashire working round the clock.” Surplus agricultural and manufacturing output was even more of an issue in the United States, which had led the way in mass production but had no captive imperial markets to speak of. There is the apocryphal story of James Buchanan Duke, father of the modern American tobacco industry, who, on hearing of the invention of a high-volume mechanised cigarette-rolling machine in the 1880s, ordered for an atlas to be put before him. Leafing through the population legends at the bottom of the pages, he stopped when confronted by the entry “Pop: 430,000,000.” “That,” he said, “is where we are going to sell cigarettes.” Henry Cabot Lodge, who represented textile interests as a senator for Massachusetts, captured the perceived urgency of the exporter’s task: “All Europe is seizing on China,” he wrote at the turn of the century, “and if we do not establish ourselves in the east that vast trade, from which we must draw our future prosperity, and the great region in which alone we can hope to find the new markets so essential to us, will be practically closed to us for ever.” Of course, the trade was still far from vast. But Mr Lodge and his mill-owning constituents were determined that if the modern Chinese was to wear a shirt made from Manchester cotton, he should also be equipped with New England underpants. Underwear, curiously, was one of the first great untapped Chinese markets to be identified by American business.

The desire for further trade with China provided the impetus for US secretary of state John Hay to ask the major powers in 1899 to declare that they would respect the country’s territorial integrity and allow free use of the treaty ports in their spheres of influence. Given that the US had no territorial sphere of influence in China, this policy made sense in its own right. But behind the US government’s action was a vociferous US business lobby. The New York Chamber of Commerce, terrified that the Europeans were about to grab China’s riches for themselves, wrote to the State Department demanding that it take “such proper steps . . . for the prompt and energetic defence of the existing treaty rights of our citizens in China, and for the preservation and protection of their important commercial interests in that Empire.” Manufacturers and producers of textiles, cotton, steel, iron, kerosene and cigarettes all put the case for urgent action before their government, whether through open letters or congressional testimony. The pressure was reinforced by an alliance between American business and US Protestant missionaries, who numbered 3,000 in China by the 1930s. The latter could be found soliciting donations on the sidewalks of almost every big American city, and their demand was simple: free trade in souls and conversions.

The China lobby was no less fierce in Europe. After 1869, the opening of the Suez Canal—contemporaneous with the development of steamships—made the Suez-Bombay-Colombo-Singapore-Shanghai route the jugular of the British empire. Not only did Manchester cotton makers and other durable goods manufacturers demand that the British government secure their market access in China, but the highly influential grandees of the City of London—blue-blooded pioneers of international financial services—insisted their turf be protected. China needed financing, and London must profit by it.

The first great investment gold rush in China concerned railways. The railway investors applied John Maynard Keynes’s investment “multiplier” theory even before the British economist’s career had begun. With China’s modern infrastructure almost non-existent, it was reckoned that the construction of trunk rail routes would pump prime an explosion of economic growth—across trade, manufacturing and services. This was the story that players like the US Western Union Company sold to their domestic financiers. As the general turned businessman J. H. Wilson put it in a letter to the US diplomat—and later secretary of state—John W. Foster in 1884: “If we could build for her [China] a few thousand miles of railroad, we should not only supply the steel, the locomotives, and the cars but should greatly stimulate the demand for every other article manufactured by our countrymen.”

Practice was rather more testing than theory. The Chinese court was highly suspicious of railways—and their promise of unrestricted travel—and reacted to the first line, built without permission near Shanghai in 1877, by compulsorily purchasing and destroying it. The progress of the iron roads, however, was not to be stopped. Imperial consent for railway building was given, after intense pressure, in 1887. The first trunk lines were built in the 1890s, followed by countrywide construction in the first decade of the twentieth century, when 5,000 miles of track were laid. American, Russian, French, Belgian, German and British companies and entrepreneurs poured in millions of dollars of investment. The railway rush was so intense that from 1909 the financing of all projects was centralised under an international banking consortium. The US government, in particular, believed this was less likely to make railway building a trigger for the colonisation and break-up of China.

On the heels of railway money followed investment in trade and manufacturing. The sectors of activity reflected on the one hand the scale of the perceived opportunity—almost everything was tried—and on the other the kind of strategic planning that has continued to dominate foreign investment in China. Thus the American journalist turned advertising agency boss Carl Crow could write in 1937 that: “At one time or another, almost every conceivable kind of merchandise has been shipped to China on the off chance that some use would be found for it and that a market would be built up.” Equally, in a specific industry like cosmetics, foreign manufacturers seized on the predilection of a minority of urban Qing women for wearing make-up, made calculations based on the business to be had if Chinese women generally wore make-up, and flooded the market in anticipation. There were similar projections made in the pharmaceutical business. The remnants of millions of advertising posters produced by foreign drug companies in the period can still be found in the antique markets of large Chinese cities.

With inward investment came a real estate boom in coastal China. This was most impressive in Shanghai, where the years following the First World War witnessed the construction of the country’s first high-rise office blocks and hotels, including the sandstone structures with Art Deco and neo-classical interiors on the Bund waterfront and Nanjing road that can still be seen, having survived the architectural ravages of the late twentieth century. As is the case today, expensive new office buildings were occupied almost exclusively by foreigners. Many merchants leased grand premises as soon as they arrived in China—long before they could assess the market’s potential—convinced that in such an important country their commercial “face” was of paramount importance. Crow likened the opening of international branch offices in Shanghai between the world wars to an outbreak of measles, observing: “It really is remarkable how much vanity there is in supposedly astute businessmen, or how much romance. It is either vanity or the romantic idea that business is like an adventure story that, in many cases, provides the urge to make them open expensive branch offices.”

Vanity or not, the foreign population in China exploded in the inter-war years to 600,000 people—double the foreign population, excluding Hong Kong and Taiwanese residents, today. The largest group among the inter-war expatriates were white Russians, around a quarter of million of them. There were other refugees, including Kazhaks—also in flight from Bolshevism—and German, Austrian and Hungarian Jews who founded a community in Shanghai. But another 300,000 foreigners were in China entirely of their own volition, there to either construct or exploit the market place. There were diplomats around the country, consuls at treaty ports, flag officers, professionals in the maritime customs administration, the foreign salt gabelle and the post office, emissaries from the League of Nations, lawyers, accountants, engineers, architects, conservationists, missionaries, dentists, doctors and vets. And there were tens of thousands of businessmen and office managers, not to mention the adventurers and tricksters of popular legend. With all those spacious offices, shops, bars and homes, the city in the 1930s consumed more electricity than any English metropolis except London.