The Canton System of Trade

by Ralph Heymsfeld

The Canton System of regulating foreign trade with China operated for roughly 150 years from the late 17th century until war with England brought it abruptly to a halt in 1842. The system itself was restrictive by design, keeping foreigners confined to a small commercial district in Canton known as the Factories and prohibiting direct contact between foreigners and the Chinese. Although a series of trade practices and regulations might otherwise be of little or no consequence to history, as the setting in which the Opium War erupted, the Canton System is a topic of frequent study and even debate.

From the very beginning, Chinese officials were wary of European traders and sought to limit their activities. Their concerns were not unfounded. The crews of merchant vessels plying the seas in the 16th and 17th centuries were at best a rough and tumble lot, and at worst were well armed pirates plundering and enslaving when they could.

The Portuguese were the first Europeans to reach China by sea, arriving at Canton in 1514 and 1517. The early encounters between the Portuguese and the Chinese went badly and the Ming court soon expelled the traders and broke off relations. The traders were accused of a host of crimes running the gamut from thievery to kidnapping to cannibalism (the cannibalism charge was probably not true). Ultimately Portugal was able to mend the trading relationship and in the mid-16th century established a settlement in Macao.

In the centuries to come traders from Portugal were followed by traders from various countries, and foreign ships visiting China increased in number and regularity. Ships from The Netherlands, England, Spain, Russia, Germany, and Italy each arrived in turn. Although the travelers were able to establish trade to greater and lesser degrees, none were permitted to make settlements as Portugal had.

The Qing (or Ch'ing) Dynasty (1662–1911) is the political matrix from which the Canton System emerged. Economically, the preceding Ming Dynasty (1368-1662) was characterized by a relatively laissez-faire approach which saw an increase in private enterprise and foreign trade. Although its difficulties in collecting taxes and chronic underfunding are cited in the dynasty’s downfall, prior to its ultimate collapse the Ming saw a period of economic growth and increased prosperity. The government under the Qing Dynasty became highly centralized and structured about an Emperor who was an absolute monarch. This centralized, authoritarian approach was reflected in its economic policies which saw a return to state-run enterprise and interventionist practices. The Qing also saw an inward turning and a rejection of things not Chinese. It is significant that the Qing Dynasty was Manchu not Han. For the entirety of its rule the dynasty was perceived by the Han as being a foreign occupation and it was as much threatened from within as it was from without. Many of the economic and political structures put in place were based on the inescapable Manchu distrust of Han.

The movement to centralize trade at Canton was gradual and seems to have developed along a somewhat natural flow. Canton offered many advantages as a port. It had ready access to natural resources and provisions, and had a large community of tradesmen to provide services in support of the foreign vessels. Canton also met the needs of the Qing Court which was concerned with cultural protections and the isolation of foreign interests, while also wanting to ensure the proper collection of duties and taxes. In 1757 the Qing Court officially restricted trade to Canton.

While at Canton, the activities of merchants were significantly constrained. Foreigners were confined to the Factories, a small warehouse district near the banks of the Pearl River. They were forbidden to associate directly with Chinese people and they were not allowed to learn the Chinese language. Foreign women were not permitted to visit the Factories. Foreign merchants were not permitted to setup permanent residence at Canton. They were only allowed to stay at the Factories during the shipping season and moved to Macao during the offseason.

A central feature of the Canton System was the Cohong, a monopolistic guild of hong merchants. The hong merchants had organized to control pricing and strengthen their position both in dealings with the Chinese government and with foreign merchants. As the Canton trade evolved, the Cohong took on an increasing role as an agent of the government. In 1754 the security merchant system was established in which each foreign vessel was required to have a single hong merchant assume responsibility for it.

As the sole interface between the foreign world and the institutions of China, the responsibilities of the hong merchants were vast. The Imperial Court held the hong merchants responsible for the behavior of the foreigners and they were also the guarantors of the various fees that were to be collected. The merchants brought Chinese goods to Canton for trade, negotiated prices, arranged pilotage to have the foreign ships brought into port, provided linguists, and arranged for provisions.

The hong functioned in a volatile economic reality. Hong merchants were frequently in financial distress and bankruptcy was common. At the same time, there were vast profits to be made and successful hong were among the world’s wealthiest merchants.

The British were among the most significant traders of the Canton period, and for most of this time British trade was in the hands of the English East India Company which had been granted a monopoly on trade in the east by the British Crown. As England’s power and global influence grew, and trade with China increased, the British became dissatisfied with the restrictions at Canton and sought at various times to establish more formal diplomatic relations and more favorable trade terms. These efforts met with little success.

In 1793 King George III dispatched Lord George Macartney to seek an audience with the Qianlong Emperor. Macartney was able to access the Emperor and their meeting was cordial despite Macartney’s famous refusal to perform the koutou, a bowing ritual customarily required for those paying tribute at the Chinese court. Despite the outward cordiality, Macartney was unable to secure formal diplomatic relations or any additional trading privileges. The Qianlong Emperor issued two edicts that he sent home with Macartney. The edicts are often quoted as a summation of China’s view of its place in the world order, and its opinion on the prospects of European trade:

“Our dynasty’s majestic virtue has penetrated unto every country under Heaven, and Kings of all nations have offered their costly tribute by land and sea. As your Ambassador can see for himself, we possess all things. I set no value on objects strange or ingenious, and have no use for your country’s manufactures.”

Although the language was lofty, it does it fact appear to be true that China had little use for what England was selling – tin, lead, copper, wool, and cotton. Europe on the other hand had a tremendous appetite for China’s exports of silk, porcelain, and especially tea. By the year 1800 the English East India Company was shipping more than 23 million pounds of tea annually. Since the Chinese were not interested in English goods, a terrible trade imbalance existed. The Company was able to mitigate this imbalance somewhat by establishing a trade circuit which facilitated trade between India and China, but the net effect of the deficit was nonetheless a flow of silver bullion out of England and into China.

The final years of the Canton system saw a dramatic reversal in this trade deficit when the English finally discovered a product they could trade at a profit - opium. In the early decades of the 19th century, opium use in China exploded and foreign merchants of many nations were more than willing to engage in the illicit trade. As the Chinese government grew increasingly alarmed by the opium epidemic, and took increasingly strong measures to reestablish control, the trade in Canton degenerated into a criminal world of foreign smugglers and corrupt Chinese officials.

Ultimately the Chinese proved unable to control either the opium trade or the foreign interests. In the Opium War of 1839-42 British warships soundly defeated the Chinese military. The Treaty of Nanking brought an end to hostilities and also an end to the Canton system. The treaty mandated tariffs favorable to England and established Treaty Ports in which foreign interests could operate at will and were not subject to Chinese law. Just as the Canton System defined China’s relationship with the rest of the world prior to 1842, the Treaty Ports with their inherent challenge to Chinese sovereignty would define this relationship well into the 20th century.

About the Author: Ralph Heymsfeld is a prolific writer and an avid hobbyist. Connect with Ralph on LinkedIn. You can find more of Ralph's writing on his website at ralph.heymsfeld.com

Sources:

Chang, Hsin-pao, Commissioner Lin and the Opium War, Cambridge, Harvard University Press, 1964, Print.

Van Dyke, Paul Arthur, The Canton Trade: Life and Enterprise on the China Coast 1700-1845, Hong Kong, Hong Kong University Press, 2005, Print.

Tamura, Eileen, China: Understanding Its Past, Hawaii, University of Hawaii Press, 1998, Print.

Two Edicts From the Qianlong Emperor on the Occasion of Lord Macartney's Mission to China, September 1793, retrieved from Asia for Educators | Columbia University http://afe.easia.columbia.edu

The Canton System of Trade

by Ralph Heymsfeld

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