ZELIN, M. (1997). China's Economy in comparative perspective, 1500 onward. In A. EMBREE, T. & C. GLUCK (Ed.), Asia in Western and World History ( pp. 474-493). Nova York: M.E.Sharpe.

 

CHINA’S ECONOMY IN COMPARATIVE PERSPECTIVE, 1500 ONWARD

Madeleine Zelin

 

The story of China’s effort to develop a modem industrial econ­omy is one that students can follow in the news media today. The relatively slow pace of China’s economic development in the nineteenth and early twentieth centuries led observers in the past to portray China as an unchanging giant. Chinese culture itself came to be seen as an obstacle to economic change, and many commentators came to believe that only the “impact of the West” could propel China into the modem world. This essay is intended to dispel these myths. Instead we shall see that in the period between 1500 and 1800 China underwent important changes, which can be called a commercial revolution. How­ever, a number of factors, both indigenous and external, limited the development of an industrial economy both before and after the mid-nineteenth century, when the Western presence be­came a major force in Chinese affairs. Our discussion of these factors will be divided into two parts:

 

I.   A comparison of Chinese and Japanese development, to counter the myth of East Asian culture as an obstacle to development.

II.  An examination of China’s commercial revolution and the role that the development of a complex commercial economy played in China’s industrialization process.

 

THE CHINESE-JAPANESE COMPARISON

 

   An early nineteenth-century Chinese official discussing problems of governance would have found a sympathetic audience among offi­cials in Japan. In China the Qlng Dynasty continued a centuries-long process during which centralizing, bureaucratic rule by officials largely selected through government examination brought order to a vast and varied empire. In Tokugawa Japan a more fragmented feudal structure left a large arena of social and eco­nomic policy making to individual daimyo domains, within a cen­tral structure headed by the Tokugawa shoguns in Edo (present-day Tokyo). Nevertheless, Confucianism formed the basis for elite edu­cation and self-definition in both countries. Loyalty to the ruler, reinforced by Confucian ideals of hierarchy and reciprocity, and quasi-religious notions of the ruler’s descent from “Heaven” also played an important role in state legitimization. For the Qing Empire and the Tokugawa shogunate, the “long eighteenth cen­tury” had been one of peace, the development of political institu­tions, and economic growth from a largely rice-growing peasant base. However, by the 1800s both were beset, although to a differ­ent degree, by popular unrest, elite dissent, and the increasing threat of military and economic challenge from the West. In China and Japan, the experience of internal change and external con­frontation wrought fundamental changes in political and social structures. These changes influenced the way in which more long-lasting economic structures served the goal of economic develop­ment.

 

A COMPARISON OF POLITICAL STRUCTURES

 

Japan’s response to its nineteenth-century crisis was the abolition of Tokugawa feudalism and the establishment after the Meiji Res­toration in 1868 of a new system of rule. Although couched in terms of a restoration of ancient political traditions, this imperial government necessitated a number of extraordinary changes. Among these was the centralization of political authority, the end of domain rule and the cession of domain land to the central govermnent, the abolition of the hereditary class system, revision of the land tax, the establishment of a system of universal educa­lion, and the institution of conscription and a national army.

The legitimizing power behind this transformation was the in­stitution of the emperor, a strong symbolic focus for national unity apart from any political structure. This period also saw a revival of the use of Shinto beliefs to reinforce loyalty to the emperor and the new regime. The fact that Confucianism and the political and social values associated with it were themselves bor­rowed made it possible for Japanese to Westernize, abandoning some elements of their tradition without feeling that they were abandoning their entire culture. All of these factors contributed to the dynamism with which Japan undertook the reform of its insti­tutions in the last decades of the nineteenth century.

Following the downfall of the Tokugawa shogunate Japan was thus able to establish a vital, strong, centralized government. This feat was not accomplished without difficulty, and clearly the struggle to become a powerful, modem state led to many compet­ing visions of the state in Japan. Nevertheless, the contrast with China can be made as one of a strong, centralized Japan emerg­ing from feudalism, compared to a weak, fragmented China emerging from a centralized regime.

Although on the surface the Chinese political system appeared to be far more centralized than Japan’s, by the turn of the nine­teenth century China faced two critical problems. The agrarian bureaucracy, which China had perfected over the course of centu­ries, never had the resources to mobilize thoroughly the populace. Thus there always existed within the Chinese state system a contradiction between the exercise of state power and reliance on local elites to govern local people. This was exacerbated in the early nineteenth century when a series of rebellions, most notably the Taiping, forced government to cede both military and tax collecting power to local elites. Once peace was restored, the new demands of economic development, local defense, and postwar reconstruction enabled elites to carve out new domains of responsibility outside the bureaucratic structure. Thus, at the same time that Japan was developing a modern, national conscripted army, Chinese military defense came increasingly to rely on the efforts of local militia and powerful regional leaders. Central government attempts to rectify this problem with the establishment of the national New Army were consistently hampered by fiscal problems at the national level and by competing regional interests. By the twentieth century, in the period we commonly call the warlord era, this translated into political disunity as well, as the power of military strongmen was increasingly identified with political authority.

Unlike Japan, China could not easily look toward alternative foci of national unity. Whereas the emperor could be invoked as a sacred link to the Japanese people, the Manchu ruling house of Qing China was itself a non-Chinese ethnic minority. Moreover, while it was difficult for Chinese to imagine a system of rule other than that of a Confucian-based imperial regime. the notion that individual dynasties come and go was built into the dynastic system. This made the existing ruling house extremely vulnerable to political pressure and, some would argue, made it less able to undertake innovative responses to the Western threat. Finally, whereas the Japanese easily moved away from the Confucian foundations of the state and elite status, in China Confucianism and Chinese culture were synonymous. Reformers did attempt a Confucian synthesis that moved China into the modern world. And, as we will see, it is mistaken to see Confucianism per se as the key to China’s underdevelopment. Nevertheless, the kind of intellectual, pedagogical, and organizational flexibility that char­acterized late Tokugawa Japan was not evident in China.

 

A COMPARISON OF ECONOMIC STRUCTURES

 

In addition to their very different political experiences in the nine­teenth century, both the natural endowments and the political economies of China and Japan varied in important respects. Thus it was not simply a “greater willingness to change” that enabled Japan to move ahead in the area of economic development. In­deed, while scholars of China often point to Japan’s abandonment of Confucian values in its quest for modernization, scholars of Japan have often linked the persistence of key Confucian values to Japan’s early economic success.

 

Geography and infrastructures

 

Several factors helped stimulate the development of Japan’s mar­ket economy during the Tokugawa period. Japan is a small island country, with cheap and accessible coastal water transport. The Tokugawa requirement that all feudal lords reside in Edo in alter­nate years stimulated the growth of trade in the Edo region and the development of communications and transport between Edo and the main production centers at Kyoto and Osaka. In many key commodities, nineteenth-century Japan already had a well-developed national market. This national market continued to expand, as the political elite was forced to encourage the sale of more goods at Osaka to get cash for residence in Edo. In addition, the interest of daimyo in increasing productivity at home was enhanced by their desire to generate a surplus to spend in Edo. This, of course, did not preclude many dalmyo from going into debt and contributing to the wealth of merchants and others who acted as their creditors in the later years of the shogunate.

By contrast, China was a vast land-based empire. It had a flourishing coastal trade, and indeed, it was in large part because of this that the coastal provinces were the most prosperous and developed even before the so-called coming of the West. However, coastal trade accounted for only a small part of China’s total market economy, and political factors often interfered with its development. It was China’s extensive network of navigable in-land waterways that played the greatest role in encouraging com­mercialization and handicraft production in China. However, most of this riverine network lies in south China, which had the most famous centers for the production of silk, cotton cloth, porcelain, and so on. The Yellow River, the main waterway of north China, is not navigable for most of its length. In the north transportation was largely by cart or pack animal, making the cost of moving goods very high. This put a severe limitation on the market range of goods and limited the opportunities for by-employment for farming families. China’s extensive mountainous terrain also made interregional trade difficult and hampered the efficient use of a large part of its land mass. Recent research has shown that Qing China had the manpower and knowledge to engage in ecologically and economically sound forest management, highly so­phisticated management of mountain-based handicrafts (i.e. papermaking), the cultivation of commercial crops like tong trees and indigo and bamboo, and mineral extraction. However, in the absence of low-cost transportation, hill populations were forced to devote much of their land to the cultivation of food, particularly corn. This invariably resulted in degradation of hillside soils and serious erosion, with predictable consequences in the fonn of increased flooding of regions downriver. This is still a serious problem in China today.

 

Population

 

Between the seventeenth and nineteenth centuries Japan expen­enced near zero population growth. This was most likely due to a combination of factors. Japanese families practiced primogeni­ture, which required only one male heir. Japan’s rigid status hierarchy also discouraged the production of surplus sons who would have no ascribed occupation. The Japanese emphasis on the survival of the “house,” or corporate family, and not the line of blood kinship also diminished the impulse to repeated pregnan­cies until a son was born. Moreover, the greater involvement of lords in the agricultural output of their domains led to laws against abandoning taxable land, dividing land, or forming branch families. All of these factors appear to have encouraged birth control in Japan, which, as in other premodern societies, took the forms of infanticide, late marriage, and abortion.

By contrast, the seventeenth to the nineteenth century in China was a period of population growth. During these years China’s population increased approximately threefold. We will dis­cuss the effect demographic growth had on the government, on the structure of the market economy and on industrial produc­tion, on the generation of surplus wealth for industrial invest­ment, and on the peculiar fragmentation of Chinese economic activity.

 

Primogeniture

 

Although primogeniture has already been mentioned in relation to population growth, Its effect on capital accumulation and the con­solidation of family fortunes is equally important. In contrast to Japan, Chinese families practiced equal inheritance. This led to the diffusion of wealth, which was then exacerbated by population growth as property was divided among larger and larger numbers of people. Although institutions like the lineage counteracted this trend to some extent, most lineage resources took the form of ritual endowments, and it is not until the late nineteenth century that this kind of corporate wealth was used to build industrial infrastructures.

 

Legal restrictions on economic and social activity

 

One of the apparent ironies of the comparative economic develop­ment experiences of China and Japan is that the society in which the traditional state placed the greatest limitations on economic activity ended up as the most developed in the modem world. It has been argued that the restrictions placed on economic actors in Tokugawa Japan left considerable room for economic expan­sion utilizing traditional technologies in the nineteenth century, while few such opportunities existed in China. In China, restric­tions on occupational and physical mobility were never rigidly enforced. In terms of the market economy, the limitation of mar­kets to designated times and places, the control of merchants through government-appointed guild organizations, and the he­reditary registration of populations in certain occupations largely ended in the Middle Ages. The last vestiges of such a system had died out by the middle of the Ming Dynasty (1368—1644). when the decline in the usefulness of hereditary artisan and military status groups was finally recognized in law. The same can be said of the agricultural sector. Where bonded status can be docu­mented—and such places are not numerous—this status was largely gone by the seventeenth century. At the same time, limits on the physical movement of populations were generally pro forma. Occasional efforts were made to restrict migration to bor­der areas and mountain areas for fear that disorder would result from the limited reach of government to such areas and the potential conflicts that might arise between new settlers and aborigi­nal or early settling populations. Nevertheless, the history of China, particularly from the Middle Ages on, has been one of external and internal migration. The “filling up of the frontier,” a major theme in the late imperial period, is of tremendous signifi­cance to social, economic, and political historians.

In Tokugawa Japan occupational, status, and geographic mo­bility was limited. In addition, individual daimyo restricted the development of urban centers, In general confining commercial centers to the sites of their castle towns. Until relatively recently, Japanese urbanization was characterized by few lower-level mar­kets and a concentration of marketing activity at middle and higher-level market towns and cities. Moreover, quite early a na­tional market developed in Osaka, a purely commercial city, and in Edo. the shogunal capital.

China, which had no such restriction on urban development, saw the very early elaboration of a system of marketing towns arranged in a nested hierarchy of at least seven levels. If Japan’s market structure was top-heavy, China’s was bottom-heavy. In addition, while in China regional markets were internally well integrated, until the nineteenth century the national market in anything but luxury goods was relatively weak. Some people would argue that even in the twentieth century China could not be said to have a national market. Even those who do acknowl­edge Its existence recognize that It is largely due to the role of Shanghai as a national collection point for most of China’s foreign trade.

Similar differences can be detected in the realm of occupational and geographical mobility. Until the late nineteenth century most Japanese were expected to remain within the occupations to which they were born and under the jurisdiction of the lord who controlled their domain. This took on particular significance for Japan’s ruling elite. Whereas Chinese of all classes could aspire to membership in the bureaucratic elite, Japanese who were not born into the elite had no hope of making their fortune there. This is seen by many scholars as encouraging merchant activity among the Japanese outsider classes and discouraging it among axnbi­tious Chinese.

In fact these distinctions were less rigid for the Chinese than even this scenario would have us think. Many men of official status or background did engage in commercial activity in China. The key to underdevelopment does not lie there. Nor is it unusual in any society to find those who succeed in the commercial world taking on the attributes of the political elite. Successful mer­chants and industrialists in England were just as quick to buy landed estates and join the squiredom as were their Chinese counterparts. Where the difference becomes important is in the early development of commerce and lack of restrictions in China, in contrast to the late development of commerce and escape from restrictions we find among Japan’s elite. The end of the Tokugawa shogunate meant the sudden end of status classification in Japan, which in turn meant that economic entrepreneurship was the only option open to many of Japan’s best-educated men. Sam­urai, who now found themselves out of a job as well as a status, frequently turned their administrative talents and political con­nections to business in the fluid economic atmosphere of early Meiji. Rich peasants were freer to engage in local commercial ventures. The injection of new entrepreneurial energies contrib­uted to the dynamism of the late nineteenth-century Japanese economy.

 

Agriculture

 

One final area in which early restrictions and later sudden release became Important was agriculture. China and Japan both de­pended to a large extent on rice agriculture. This has numerous implications for development that can be discussed in comparison to the European experience. Most interesting are the issue of involution, and the contrast between agricultural regimes In which livestock do and do not play a part. Despite the apparent similarities one might expect between China and Japan, there were considerable differences, some of which relate once again to the impact of early and late development. Among these, three stand out.

As in the case of urban development, China’s political structure presented no obstacles to the spread of agricultural technology. Although there were areas in twentieth-century China, particu­larly in the north, that were still using relatively primitive tools, by and large the best traditional technology had already spread throughout China by 1750 and was utilized by peasants to pro­vide China with yields that were not matched in India and Japan until modern times. In Japan, the relative isolation of the various domains from one another meant that the most advanced technol­ogy did not spread evenly. This gave Japan an “advantage of backwardness” in the nineteenth century when, during a period of low rates of population growth, traditional technologies were rap­idly improved, and with them overall yields.

Land tenure and dIstribution in China were very complex and varied greatly depending on geographic location, type of crop, the potential for multiple cropping, status of landlord, and so on. A number of generalizations are nevertheless possible. By the nine­teenth century most of China’s land was being farmed in small plots tilled by individual nuclear families. About 50 percent of arabic land was rented out to tenants, and through a combination of mechanisms rents tended to equal about 50 percent of the primary crop. Except in a small number of highly commercialized areas, tenure was still relatively insecure, particularly in the north. During the Qing. an increasing number of landlords moved to urban places. This high rate of absenteeism contributed to a growing trend toward tenant rent resistance and a decreasing degree of landlord involvement in production. While the state played a growing role in assisting landlords in the collection of rent, income from agricultural taxes diminished as a proportion of total state revenues.

In the Japanese case generalizations are equally dangerous. However, the literature seems to indicate the following differences, particularly in the richer heartland domains. While farms were similar in size to those In China. Japanese farmers appear to have had greater security of tenure. This encouraged long-term invest­ment in improving the productivity of the land. In some domains there was also greater involvement of government in improving agricultural productivity, since the daimyo’s income was directly dependent on the amount of rice produced within his territory.

Finally, Japanese political institutions were more conducive to the appropriation of the agricultural surplus by the state. Quite early the samurai were removed from the land and allocated stipends by the domainal government. This separation of the political elite from land ownership resulted in far less interference by the elite in tax collection than we find in China. The responsibility for payment of taxes resided in the village and not in the individual. The community decided how to collect its quota, and intracommunity pressure meant that tax evasion was virtually nil. Moreover, the ratio of population to local administrative units in Japan was much smaller, allowing greater administrative control of local popula­tions than in China. At the same time, the improvement of agri­cultural productivity in nineteenth-century Japan was achieved within the context of a stable population. The surplus generated at this time provided the Japanese state with a tax base, enabling it to take a leading role in the development process.

Until the twentieth century, in both China and Japan the state depended on the land tax for the bulk of its revenues. In China. however, the rate of taxation remained quite low, between 4 and 10 percent of GNP. Despite its lower tax rates, the Chinese state had a very difficult time collecting the land tax in full. This was because, in contrast to Japan, in China the elite were often land­owners, and their political power provided the means to lower their rates of taxation and to evade taxation altogether. Moreover, in China taxation was based on the individual household and on the size of Its holdings. The govermnent insisted on individual household responsibility, but did not have the administrative ca­pacity to keep up cadastral records, resurvey land in a fluid land market, and reconstruct land and population registers following their destruction in time of war and rebellion. As a result, arrears were more or less endemic throughout the Qing period. In the wake of China’s mid-nineteenth-century rebellions, the provinces themselves began holding back funds, leaving the central govern­ment seriously underfunded at a time when the costs of adminis­tration and defense and the demands of foreign powers were Increasing.

 

IMPERIALISM THE ROLE OF GOVERNMENT IN INDUSTRIALIZATION

 

The role of the West in either stimnulatingor inhibiting the process of development Is a major historiographic Issue deserving more space than can be provided here. There is no doubt, however, that the relative capacities of the Chinese and the Japanese state to deal with the West were an important factor in the economic development of each country. Both the indigenous factors cited above and the nature of the Western Impact itself determined how the rulers of China and Japan responded to the challenges pre­sented by the Western powers. Railway construction and the development of the export market in silk provide interesting examples of two aspects of this problem.

   Railways played an important part in Japan’s rapid industriallization in the late nineteenth century and in many ways are a symbol of the role of government in Japan’s modernization pro­cess. The Japanese government recognized quite early the advan­tages of an integrated railway network for domestic trade. Development of that network was subsidized by the state, which made a point of relying strictly on domestic revenues for this purpose. It was largely completed by the beginning of the twentI­eth century. By contrast, the Chinese did not really begin railway development until the 1890s. With inadequate revenues of its own, the central government turned to foreign loans for its initial efforts at railway construction. Nationalist sentiment made the recovery of the fights to build railways a major issue in the anti­Qing movement that eventually brought about the dynasty’s fall. However, domestic private investment added little to the national grid. Indeed, many of China’s main trunk lines were not con­structed until after 1949, and even today many areas of China are poorly served by railway transportation. One legacy of the pro­gram to build railways in late Qing China was an intensification of government debt to foreign banking consortia and the strings attached to these loans in the form of spheres of influence for the lending nations.

   While China was not as successful as Japan in importing transportation technology, in the early years of Western trade China led the way in exports. China was the world’s leading ex­porter of silk until the turn of the twentieth century, when compe­tition from Japan began gradually to erode China’s international market. Japan’s success was attributed in part to governmental promotion of quality controls and the institution of modem tech­nology in the raising of cocoons. Chinese industrial reformers attempted similar programs but found it impossible to bring under their control the literally millions of small peasant pro­ducers that fed China’s modem steam filatures. Fragmentation of production and the persistence of household manufacture, one of the strengths of China’s premodern economy, thus became a serious obstacle to meeting the challenge of industrial develop­ment.

   In noting their different responses to the challenge of modem Western economies, it is important to remember that China and Japan also had different experiences of Imperialism. China was the first to be attacked, and the Japanese reaction to the West was tempered by the Chinese experience and the knowledge that the West would take what it wanted by force. In contrast to the centralized bureaucracy that was in command in China, the de­centralized political system in Tokugawa Japan allowed individual domains to experiment with things Western even before it became politically acceptable to the regime as a whole. Thus a portion of Japan’s elite was prepared and familiar with Western technologies and their usefulness by the time Western pressure began to inten­slfy during the second half of the nineteenth century. While West­erners were preoccupied with China, Japan had first the breathing space to modernize and later the opportunity to join the ranks of the imperialists in the late nineteenth century. Increas­ingly after 1895, Japan can be seen using Chinese resources and markets to help build its own economy. China, on the other hand, was increasingly hampered in its development by debt obligations and indemnities to foreign powers, including Japan. These came to approximately 44 per cent of annual national tax revenues by the turn of the century. In the nineteenth century both China and Japan were forced to accept an unequal relationship with the West, through a series of so-called unequal treaties. However, a strong Japanese state was able to achieve revision of the terms of these by 1911, while the greatly weakened post-Qing republic was doomed to live with most of their provisions until World War II.

 

CHINA’S INDIGENOUS ECONOMY:

THE TRAP OF EARLY DEVELOPMENT

 

One of the ironies of the China-Japan comparison is that China before 1600 was clearly a more “developed” country than was Japan. The sophistication of Chinese political institutions permit­ted centralized administration of a vast empire with a population of at least one hundred million. Chinese agricultural technology was in many respects more advanced, and the most advanced technology was certainly more evenly distributed throughout the countryside. China had a more complex and more highly devel­oped marketing system and was more integrated into the world economy through its overland trade with central Asia and its oceangoing trade with Southeast Asia. Differential experience of imperialism and the weakening of the state go only part of the way in explaining China’s subsequent lag, particularly if we can show that some of the factors at work in the 1800s are still at work in determining the structure of industrialization and resource use in China today. If we take as measures of develop­ment increasing per capita output and income, China is still a lesser developed country. Even during the 1950s, when industrial growth averaged at least 10 percent a year, per capita output remained relatively low. The early Communist experience demon­strated that investable surplus did exist. The Chinese Communist Party would never have been able to commandeer the large pro­portion of rural output that it did to promote industrial develop­ment had that potential surplus not been there In the pre-1949 years. Moreover, the program in the l950s to extract rural sur­plus was undertaken with little increase in capital inputs to agri­culture. In order to obtain a fuller picture of the factors influencing China’s industrialization, it is necessary to look in greater detail at some of the structural factors influencing its pattern of economic development.

 

THE SMALL PEASANT ECONOMY

 

China’s prerevolutionary rural landscape was populated in large part by individual peasant proprietors, peasants who were part tenant part proprietor, or wholly tenant households, all of whom were linked by one fact, the small size of the land they managed. The large estate managed by the owner or his agent and farmed by large tenants or rural wage laborers was exceedingly rare in early modem China. Instead, landlords typically lived off rents from numerous tenants on tiny plots, often spending their lives in towns or cities at some remove from their land. In both north and south China, this fragmentation of land management led to con­siderable inefficiencies, and most of the productivity gains achieved in Chinese agriculture in the early Communist period grew out of the elimination of waste by consolidating land into collective farms.

As the size of farms declined, most Chinese farmers had to rely on employment in addition to or in lieu of the growing of crops in order to make ends meet. Rural residents were generally able to find such employment because of the dense rural marketing structure that was in place in China by the eighteenth century. Opportunities to supplement household income existed in cottage industry and in a variety of seasonal jobs, in transport and ped­dling, and in industries such as winemaklng, salt production, papermaklng, and so on. Where seasonal opportunities were not readily available, we typically see the development of patterns of seasonal brigandry. Backward regions, cut off by poor transporta­tion from the centers of economic activity, were therefore often the site of endemic problems of social control.

   The rural marketing system. with its rich variety of handicrafts and other occupations, thus helped perpetuate a fragmented agri­cultural system. The symbiosis between the two contributed to China’s slow rate of industrialization in two ways. On the one hand, the development of factory and workshop production was discouraged by the availability of a large pool of rural residents willing to work at home for below subsistence wages. On the other hand, the availability of sideline employment meant that farmers, even when unable to support their families from the plots they managed, were not driven to abandon the land as they were in other parts of the world.

 

BOTTOM-HEAVY MARKETING SYSTEM

 

One of the remarkable characteristics of China’s economy from the Middle Ages on was the almost total lack of legal impediments to trade and to the growth of institutions associated with trade. This in part accounts for the development of a dense network of rural markets and the concentration of Chinese marketing in the lower levels of the marketing hierarchy. It is difficult to indicate which came first, as they are interrelated. China’s small farmer economy could not have developed without the support of its network of local markets. In rural periodic markets and market towns rural dwellers could obtain credit to tide them over hard times, pay for ritual functions like weddings and funerals, and bridge the income gap that often developed between harvests. Rural markets were also a venue for the sale of rural produce and the purchase or exchange of raw materials for cottage industry. Markets also played important roles in the organization of rural social life and in the transmission of information and technology in premodern China. By the late Imperial period government did little to control where such markets could be established. Low taxes and relatively few taxes on commercial goods and transactions also helped to encourage trade. Government policies such as the decision to col­lect taxes In cash instead of In kind also contributed to the moneti­zation of the economy from the sixteenth century on.

G.William Skinner, a pioneer in the study of China’s rural markets, has estimated that every peasant in China, save those In the most remote regions, lived within two hours’ walk of a periodic market. By the nineteenth century, many of these markets met as often as every other day, and some had become permanent mar­ket towns. Moreover, through a nested hierarchy of markets above the rural periodic market, rural producers and consumers were linked to each other at least to the level of the regional metropolis, and in some cases to the emerging national market of Shanghai.

 

IMPLICATIONS FOR CHiNESE ECONOMIC DEVELOPMENT

 

Economic fragmentation

 

Rather than encouraging the development of large merchant/manufacturers, China’s dense and highly integrated market structure encouraged the perpetuation of peasant household pro­duction. Peasants could get all the raw materials they needed from peddlers or merchants at periodic markets, and could sell their finished goods to these same men. This obviated the need for putting out, as developed in Europe, and discouraged capital ac­cumulation, the control of production by merchants, and the con­centration of production In rural and quasi-urban workshops. It also guaranteed that the large wholesalers who eventually dealt with the long-distance marketing of certain goods, like textiles, were economically remote from the actual producers of the goods they sold.

   China’s large size and its integrated network of rural markets also allowed for a high degree of flexibility In dealing with chang­ing market conditions. If shortages emerged In one region, It was relatively easy to find alternative sources elsewhere. Therefore we find few examples in China of the kind of production crisis that In some countries acted as a spur to innovation and the moderniza­tion of techniques.

   The cotton textile industry provides a good example of the mar­ket mechanism at work. By the nineteenth century cotton was grown almost everywhere in China. Rural dwellers either grew their own or bought raw cotton in periodic markets and sold their yarn to small merchants in exchange for cash or more cotton to spin. Spinning wheels were homemade and involved little commit­ment in cash. When a family needed more money, its members spun more. When other uses of their time were deemed more valuable, they stopped spinning. If prices for spun yarn went up, more people engaged in spinning yarn instead of in other employ­ments such as weaving mats or making sandals. In other words, the inflow and outflow of labor into this industry responded well to the forces of supply and demand and ensured that there were few bottlenecks In the labor market sufficient to stimulate labor­saving innovations.

   Similar claims can be made for the supply of raw cotton. For a brief period China imported raw cotton from India to supplement native supply. However, this was soon supplanted by increased native production in north China, supplying weavers who were mostly in the south. The ability of this large empire to act as its own supplier and to generate most of its demand is an important contrast, not only with Japan, but also with the West. With few barriers to trade, there were fewer stimuli to innovation. Some scholars would argue that there was also no equivalent to the impulse to conquer new markets, to compete by creating new and better products, and so on. that was crucial to the development process in the West. Indeed, the distribution chain created by this marketing structure seriously muffled the impact of consumer preference on producer activity. Between the peasant producer in the village and the consumer, perhaps in a city hundreds or thousands of miles away, was the peddler who bought his cloth and sold it to a larger peddler, who sold it to a wholesaler, who sold It to a broker, who contracted with dyers and finishers and then sold It to another wholesaler, who then sold it himself to retailers or went through retail brokers who then sent it to the shops where it was bought as finished cloth. This too is seen by some scholars as inhibiting innovation and entrepreneurship in the manufacturing sector.

The structure of the market also helps explain why Western penetration of China’s economy brought so few tangible results. Many scholars have debated the negative and positive influence of Western economic penetration of China. One element in this de­bate centers on the failure of Western trade to transfonn China’s native economy. If Western economic institutions, as well as most Westerners, remained restricted to a small number of treaty ports, one could argue that the West did not really hurt China’s econ­omy because it remained largely detached from it. On the other hand, one could equally argue that the demonstration effect of Western technology and business methods was small. However you choose to view this issue, it is important to note that the relative imperviousness of China’s native economy to the transfor­mauve influences of Western trade and manufacturing were in part due to the marketing system we have been describing. Here, tea provides a good case in point.

Tea was one of China’s main exports during the early modern period. When treaty agreements made possible Western merchant residence inland, many Westerners believed they had won a privi­iege which would free them from Chinese merchant intermediaries and would herald the direct management of production by West­ern trading companies. In fact, they soon discovered that the fragmentation of the Chinese production regime and the role of the local periodic market in coordinating production and market­trig meant that they would never really be able to control directly the activities of Chinese producers.

Tea in China was not produced on large plantations which could be bought or contracted to a particular trading company. Rather, it was grown by thousands and thousands of small peas­ant freeholders and tenants on small plots of land, and sold to Chinese agents and peddlers, who then traded it up the market hierarchy In much the same manner as cotton was traded. Even the British-American Tobacco Company, which was one of the most successful foreign companies in penetrating the Chinese market structure, ultimately ended up plugging itself into Chinese merchant networks. No foreign company could muster the man­power or the ground-level expertise to operate a direct marketing concern. The fragmentation of production also made standardiza­tion and quality controls geared toward an international market much more difficult in China than in Japan.

   The fragmentation described above may be called horizontal fragmentation, the division of an industry into a multitude of independent producers. Chinese industry also experienced verti­cal fragmentation. It was highly unusual in China to find manu­facturers who also had control of the sources of raw materials, coordinated all the processes of production, and engaged in their own marketing. Indeed, in some industries undercapitalization led to separate ownership of the physical manufacturing plant and the finn that used the plant to manufacture goods.

 

Poor transportation

 

Geography was a major obstacle to the development of an inex­pensive national transportation network in China. The effect of poor transportation was to deter the movement of bulk goods like coal in a national market. Even in the twentieth century the cost of transport could double the price of coal within a few kilometers of the mine. This, and the paucity of easily harnessed water power, discouraged development of inorganic energy sources be­fore the period of Western impact. Railways have played an im­portant role in linking remote and more isolated regions of China to the national economy. However, as we have already seen, the introduction of railway transportation was also fraught with diffi­culty. Efforts at private railway investment met with only partial success, and government efforts to build railways with foreign loans contributed to the fall of the Imperial regime. During the Republican period China’s railway grid doubled in length, but military considerations often superseded economic concerns in the placement of track, and political fragmentation often interfered with the integrating effects of railway construction. It is no accident that even today it is the coastal provinces, within easy reach of foreign markets, and benefiting from ease of interregional trade, that are the most advanced, both economically and in terms of the development of a cosmopolitan cultural perspective.

 

Low levels of capital accumulation

 

The domination of agriculture by small peasant farming regimes impeded capital accumulation in a number of ways. Profits from the land were low. Although peasants often paid 50 percent or more of the crop in rent, this translated into a relatively low return on investment for landlords. That land was considered an important target of investment by those with wealth in China reflected both a lack of other investment opportunities and the security that landed wealth could provide. Farmers were left with little surplus to invest in improved productivity. Although many daily use items were purchased in rural markets, overall the level of demand in the countryside remained low and could not stimu­late a dramatic rise in the production of manufactured goods.

   The vertical fragmentation described above also contributed to low levels of capital accumulation. Where profits were divided over long chains of production and distribution, a low marginal return at each stage was common. Equal inheritance and a relatively egalitarian social structure further hampered the concentration of wealth. Thus, while China had no shortage of surplus capital, that capital was often too dispersed to be easily combined for industrial Investment.

 

CONCLUSION

 

The structural conditions which slowed China’s early industrial development were exacerbated by political instability, weak cen­tral government, world depression, and war during the first half of the twentieth century. The communist government which took power alter the revolution In 1949 in part solved the problem of industrial investment through a planned economy in which the state financed industrial development, in part through high levels of extraction from the agricultural sector. Western trade played almost no part in this development, and following the Sino-Soviet split of the 1960s, the Chinese economy was largely self-suffi­cient. Although much of China’s modern industrial plant, partic­ularly that devoted to heavy Industry, was built up in this way, policy decisions taken during the Cultural Revolution (1966—76) led to a slowing down of China’s industrial growth. Emphasis was placed on the establishment of large Industrial projects in inland regions, largely for strategic purposes. Most of these pro­jects were built at enormous cost in regions far from China’s main concentrations of population and transportation resources, were shoddily built, and required large subsidies to keep in oper­ation. At the same time, the decentralIzation of economic decision making undertaken during this period resulted in the disman­tling of the central planning apparatus. When it became apparent that something had to be done to restore the high rates of indus­trial growth that China had enjoyed during the early years of the PRC, two things became clear: a) reform had to include incen­tives to the rural population to increase declining rates of agri­cultural productivity under collectivization and b) it would be impossible to restore the central planning structures upon which growth during the 1950s was based.

   In the end, China under Deng Xiaoping opted for a semi-free market economy after 1978. beginning with decollectivization of agriculture and the legalization of small-scale enterprise in the early 1980s. By the early 1990s private and provincial/local col­lective enterprise accounted for a larger portion of GNP than state-run industry. GNP growth rates were once again in the dou­ble-digit range, and the expanding market in consumer goods and increasing popular access to entertainment and service industries gave China an air of prosperity unknown in living memory. And for the first time since 1949 foreign trade, particularly a growing market for Chinese exports abroad, played an important part in China’s economy.

   Nevertheless, as China approaches the twenty-first centuiy, many questions regarding its economic future remain. Some of them hearken back to problems which helped mold China’s early modern economy in centuries past. What role will the state play in the economy of China? What will be the fate of China’s state-run industries? Will the Chinese state be able to develop a system of civil and administrative law that will both foster growth and pro­tect the public interest as a larger and larger portion of GNP is outside the state? Will the state, which now depends almost en­tirely upon profits from state-run industries, be able to develop a system of taxation that will provide It with sufficient revenues to fund the social services and infrastructural investments that until recently were the responsibility of the collective sector? Will efforts at family planning succeed in preventing population growth from offsetting the benefits of China’s development process? And will China be able to address persistent inequalities between rural and urban, between coastal and inland regions, and between north and south? The answers to these questions will not only help determine the economic future of the Chinese people. They will also be a critical factor in the survival of the communist state.