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Title: The long cycles of the China-centric trading system in East and Southeast Asia


1
The long cycles of the China-centric trading
system in East and Southeast Asia
  • Thomas M. H. Chan,
  • China Business Centre,
  • Hong Kong Polytechnic University,
  • Beijing, September 2006

2
Globalization
  • What is globalization?
  • long-distance trades that links distant economies
    into a global network/system and/or
  • Economic integration at a global level price
    convergence of precious metals (as monies),
    luxuries (for the metropolitan elites), and/or
    ordinary commodities (as part of the lifestyles
    of the general populations).

3
Long-distance trade
  • Regional, continental and cross-continental
  • processes of economic growth and development to
    provide surplus products for trading and demand
    in the form of internationally accepted monies
    for imports that are facilitated by
  • Improvement in transport technologies political
    protection for long-distance traveling and
    shipping of goods.

4
  • There has always been long-distance trade that
    even stretches across continents, first in the
    interlinked Eurasia-Africa continental land mass,
    and later with the Americas that are separated by
    oceans.
  • The first cross-continental long distance trade
    started with the emergence of two major
    civilization zones at the two ends of the
    Eurasian land lass China and the Mediterranean
    (plus Middle East) 2 thousand years ago.

5
  • Map1 The Eurasian and African world-system from
    the first to the third century.
  • Source Philippe Beaujard, The Indian Ocean in
    Eurasian and African world systems before the
    16th Century, Journal of World History, vol.16,
    no.4, (December 2005), p.425

6
  • Map2 The Eurasian and African world-system from
    the seventh to the ninth century.
  • Source Philippe Beaujard, 2005, p.426.

7
  • Map 3 The Eurasian and African world-system from
    the eleventh to the early thirteenth century.
  • Source Philippe Beaujard, 2005, p.427

8
Cross-continent trade
  • Cross-continental long distance trade had taken
    place mostly between China and the Mediterranean
    (plus Central Asian empires kingdoms, which
    served both as destination and intermediary), but
    mostly in one-way flow of Chinese silk products
    to the west.
  • - China, including the Han (202 BC 220) and
    Tang (618-907) empires, did not rely on trades
    with the west through the Silk Road, and were not
    interested in the trade either their westward
    ventures were for the sake of securing the safety
    of its borders against nomadic tribes. The defeat
    of the Tang army by the Arabs in mid-8th Century
    had stopped ever since any westward adventures of
    the Chinese empires beyond its frontiers except
    for the brief interval by the Mongols (Yuan
    Dynasty 1279-1368), who were basically nomadic
    peoples.
  • - with economic recovery in Europe after the
    collapse of the Roman Empire and the rise the
    Muslim world, 3 major routes of access to the
    Orient had been established after the
    military/colonizing ventures of the Crusades in
    an attempt to break the Muslim control of the
    gateway to the Orient and the highly profitable
    cross-continental long-distance trade to China
    (and India). The routes had also helped to
    spread the import-substitution production of silk
    products from Iran-Iraq areas to Southern Europe
    (Italy later Southern France)
  • Janet Abu-Lughod, Before European Hegemony The
    World System AD 1250-1350, Oxford, Oxford
    University Press, 1989.

9
  • 2. The disintegration of the Tang Dynasty
    (618-907) under the forces of nomadic invasions
    had cut China off from its access to west, but it
    led to greater development of Southern China and
    the shift of the Chinese government economy
    toward the sea. The birth of commercial
    shipping in China via the Indian Ocean occurred
    only after the massive populating of southeast
    China and the development of a communication
    system between north China (with its capital in
    Beijing) and south China (Janet Abu-Lughod,
    1989346) A new silk trade from the sea that
    linked Canton in South China via the Indian Ocean
    to central Asia and then to the Mediterranean had
    then been established with intense interaction
    between Chinese and the Arabs, Persians,
    Armenians, Islamized South Asian and Southeast
    Asian since the Song Dynasty (960-1279) down to
    the Ming Dynasty the Chinese state influence in
    the Indian Ocean reached its zenith in early
    years of the Ming Dynasty in the form of the
    naval visits of Zheng He (1405-1431) , but was
    abruptly stopped when the Ming government imposed
    ban on sea-going trading activities until 1567.

10
  • Map 4 The Eurasian and African world-system in
    the thirteenth and fourteenth centuries.
  • Source Philippe Beaujard, 2005, p.428

11
  • Map 5 The Eurasian and African world-system in
    the fifteenth century.
  • Source Philippe Beaujard, 2005, p.429

12
Cycles of silver
  • The starting point
  • silverization (the Single Whip tax system, 1574)
    in the Ming Dynasty (1368-1644) of China
    following the collapse of paper currency adopted
    since the Song Dynasty ( ) with silver as both
    national and international currencies while China
    produced little silver, Chinas economic growth
    and trade had been dependent on and boosted by
    the availability of silver supplies (net increase
    in money supply) in the economy the demand for
    silver by China had created a global system of
    trade that stimulated overseas silver exploration
    and production and had drawn in silver from all
    over the world with the consequence of the great
    expansion of Chinas exporting industries silk,
    porcelain, tea, sugar cotton textiles to
    exchange for silver.

13
1. The Potosf/Japan cycle (1540s 1640s)
  • In the early 16th Century, the gold/silver ratio
    in China stood at 16, while the ratio hovered
    around 112 in Europe, 110 in Persia and 18 in
    India In the 1590s the ratio was 17 in Canton,
    112.5/14 in Spain, 110 in Japan 19 in Moghul
    India this allowed an almost 100 premium and
    was said to trigger massive flow of silver from
    Potosf in Upper Peru and Acapulco in Mexico of
    the New Spain and from Japan to China directly or
    indirectly via Europe and India. (10,000 tons of
    silver from Japan to China in the late 16th
    early 17th Century the Manila galleons alone
    carried over 50 tons of silver annually to China
    throughout the 17th Century)
  • b) The silver import had been exchanged by
    massive exports of highly profitable silk,
    porcelain, sugar, etc. and was responsible for
    rapid economic growth and population increase in
    China (population from 155 million in 1500 to 231
    million in 1600 268 million in 1650). The trade
    was carried out by the Chinese, Japanese,
    Spanish, Portuguese, and the Dutch with trading
    centers in Manila Macau).
  • c) Global convergence of the gold/silver ratio
    came by the 1640s and had caused the great
    silver-based trade declined, leading probably to
    the fall of the Ming Dynasty in China and the
    long-term decline of Spain (under the so called
    Dutch Disease)
  • Dennis O. Flynn A. Giraldez, Cycles of silver
    global economic unity through the mid-18th
    Century, The Journal of World History, vol.13,
    no.2, (Fall 2002), pp.391-427

14
2. The Mexican cycle (1700-1750)
  • In the first half of the 18th Century the
    gold/silver ratio in China remained fairly
    constant at 110-11 in contrast to the ratio of
    115 in Europe. The premium was only 50, but the
    volume exported to China was much higher than in
    the previous cycle.
  • The most important export product from China in
    exchange for the silver was tea and the huge
    demand for silver had promoted increased
    commercialization of the Chinese economy and a
    rapid increase in population as in the past.
  • The convergence of the gold/silver ratio in 1750
    had marked the end of the trade domination by the
    Dutch and French, replaced by the British. The
    Qing Dynasty of China had also began to show its
    economic decline after it.
  • However, Chinas exports and trade surplus
    continued on the industrial and agricultural
    production capabilities built in previous eras of
    flourishing export trade.

15
  • Source A.G. Frank, Re-ORIENT Global Economy in
    the Asian Age, Berkeley, University of California
    Press, 1998, p.65, Map 2.1

16
The China-centric tributary system of trade in
East and Southeast Asia
  • The foundation
  • Territorial China as the most advanced
    socio-economic system in East Asia for millennia
    and had served as the core area of the
    inter-state system in the region without any
    challenges except intermittently from nomadic
    tribes in the northern region, which only posed
    military challenges but were often assimilated.
  • The evolution of the inter-state system followed
    a process of consolidation in the core area
    (shifting from Changan in the beginning of the
    last millennium westward with a system of dual
    centres based in Beijing the southern part of
    the Chang Jiang Delta region) and a concentric
    expansion outward. At times of political
    unification, it took the form of empires, but at
    times of disunification, it took the form of
    competing and warring regional local states.

17
  • 3. The millennia-long domination of the Chinese
    state(s) from the core area had created a graded
    and concentric hierarchy as well as an unifying
    cultural ideology (Confucianism)
  • a) The mandate of Heaven to rule all humankind
    of the emperor
  • b) A 3-tier political system beyond the core
    area the sinic zone (Korea, Vietnam, the
    Ryukyu Islands sometimes Japan) the Inner Asia
    zone (tributary tribes states of the
    nomadic/semi-nomadic peoples of Inner Asia) and
    the outer barbarians
  • The two combined together to create a tributary
    system of China-other states relationship and
    official trade centered in China based on the
    political and cultural legitimacy of China.
  • The Chinese World Order Traditional Chinas
    Foreign Relations, ed. J.K. Fairbank, Cambridge,
    1968, p.2.

18
  • 4. The tributary system continued from the Tang
    Dynasty to Qing Dynasty for more than 1,000
    years, but it assumed the greatest influence in
    East Southeast Asia only after the Ming Dynasty
    with the naval visits of Zheng He to Southeast
    Asia and the defeat of the Japanese in Korea to
    assert Chinas political hegemony in the region
    and in the western and northern frontiers during
    the Qing Dynasty after the conquests of the
    Mongolian Tibetan and in particular Kishgaria.
  • The tributary system consisted of official
    trades of mostly gifts between the vassal states
    and the empire. And along the official trades,
    there had also be flourishing private trades
    either in accompanying the official trade or as
    illegal activities undertaken by the vassal
    states with the involvement of Chinese local
    officials and merchants, but against the laws of
    the central government. The private trade was
    promoted by the increasingly globalized trade
    between China and its neighbours that had
    extended across oceans and continents thanks to
    the improvement in navigation technologies.

19
  • East and West maritime routes in Asia in the 19th
    Century
  • Source Takeshi Hamashita, Tributes and treaties
    maritime Asia and treaty ports networks in the
    era of negotiation, 1800-1900, in G. Arrighi, T.
    Hamashita M. Selden, eds., The Resurgence of
    East Asia 500, 150 and 50 Years Perspectives,
    London, Routledge, 2003, p.22,Figure 1.2

20
  • 5. The expansion in overseas trade had brought
    great wealth and transformation of the local
    economies in the coastal regions of Southern
    China, which in turn created regional political
    conflict between land-based interests in the
    north and the commercial interests in the south
    and led to brutal prolonged factional struggles
    for political power in the Ming Dynasty. The
    purge of the southern elite was accompanied by
    the central governments ban on sea-going trade
    along the coast, forcing the coastal sea-going
    merchants to ally with overseas powers (first
    Japan later European) which were attracted by
    the huge profits generated from the illegal
    trades. A maritime kingdom along the coastal
    region of China based in Taiwan governing the
    trade from Nagasaki in Japan to Manila under
    Spanish controls to the South China Sea was
    established in early Qing Dynasty. Its war with
    the empire had destroyed the coastal economy and
    led to a long period of trade ban, probably
    giving the European powers (and Japan at a later
    date) opportunities to benefit more from the
    flourishing overseas private trade from the
    maritime system evolved along the sea routes, and
    when times came to use it to force open trade
    upon China and others in the form of treaty
    ports.
  • Takeshi Hamashita, Tributes and treaties
    maritime Asia and treaty ports networks in the
    era of negotiation, 1800-1900, in G. Arrighi, T.
    Hamashita M. Selden, eds., The Resurgence of
    East Asia 500, 150 and 50 Years Perspectives,
    London, Routledge, 2003, pp.17-50

21
India
Bengali
opium

SE ASIA
Europe
cowries
China
Britain
tea

silver
gold
Manila
silver
sugar
cowries
Americas
slaves
Africa
Wold trade in 18th to 19th Century
22
The decline of China and the China-centric
trading system
  • The end of the Mexican silver cycle in 1750 had
    reduced the volume of money supply coming from
    overseas in China and although it did not impact
    immediately on Chinas export, it did impose a
    monetary constraint on the growth of the domestic
    economy and its foreign trade.
  • In 1717 Chinese were forbidden to go privately
    overseas and in 1757 the fate of the whole
    Southeast Chinese coast was sealed for nearly a
    century by the designation of Guangzhou as the
    sole legal port for foreign trade trading out of
    other ports were condemned as illegal and even
    the massacre of the Chinese merchant community in
    Manila in xxx by the Spanish army was tacitly
    endorsed by the Qing government as they were
    engaged in illegal overseas trade.
  • The inward looking policies of the Qing
    government followed by similar state monopoly of
    foreign trade in Japan and Korea left a political
    void in the maritime regions of East and
    Southeast Asia for which the European powers were
    able to dominate and through their own infighting
    created the ground of hegemony of the British in
    the 19th Century.
  • G. Arrighi, P.K. Hui, H.F. Hung M. Selden,
    Historical capitalism, East and West, in G.
    Arrighi, T. Hamashita M. Selden, eds., The
    Resurgence of East Asia 500, 150 and 50 Years
    Perspectives, London, Routledge, 2003, pp.258-333

23
  • The inward looking policies promoted industrious
    industrialization on the development of
    labour-intensive technologies in great contrast
    with the extensive industrialization of Europe
    (and America) on the development of labour-saving
    technologies.
  • In China economic development tended toward a
    deepening of the division of labour within
    households and micro-regions rather than between
    metropolitan core regions and overseas peripheral
    regions toward short-distance (intra-regional)
    rather than long-distance (inter-regional) trade
    toward state-making rather than war-making.
  • The immediate result is the explosion in the
    Chinese population, reaching nearly 400 million
    by the end of the 18th Century a formidable
    political challenge to the Chinese government and
    economy.
  • Kaoru Sugihara, The East Asian path of economic
    development a long-term perspective, G. Arrighi,
    T. Hamashita M. Selden, eds., The Resurgence of
    East Asia 500, 150 and 50 Years Perspectives,
    London, Routledge, 2003, pp.78-123.
  • G. Arrighi, P.K. Hui, H.F. Hung M. Selden,
    Historical capitalism, East and West, in G.
    Arrighi, T. Hamashita M. Selden, eds., The
    Resurgence of East Asia 500, 150 and 50 Years
    Perspectives, London, Routledge, 2003, p.284

24
  • 5. In the 19th Century China suffered from
    widespread peasant uprisings. The most disastrous
    one was the Taiping Uprising, which was like a
    civil war that ruined most of the core area of
    China. This marked the beginning of the decline
    phase of the dynasty cycle for the Qing
    government the wars uprisings destroyed
    economy, revenues of the government and the
    unified administrative control of the country. In
    addition, the Qing government relied on loans
    from European banks for importing European
    weaponry and hiring European armies.
  • 6. In the 19th Century the weakened Qing
    government suffered further crisis when European
    powers took the opportunities to invade China.
    Although European powers including Japan did not
    occupied China, the military defeats, plundering
    by the invading armies, and indemnities paid had
    ruined the public finance of the government. The
    indemnities were beyond the payment capability of
    the Qing government and they were paid by
    high-interest borrowings from European banks. In
    the later years of the imperial government at the
    turn of the century debt servicing amounted to
    20 to 40 of the annual revenues of the
    government, not including servicing of local
    debts by local governments the fiscal crisis of
    the Qing Dynasty was the primary root of its
    eventual collapse in 1911.

25
  • 7. The weakening of China benefited Japan, which
    was the second most important economy in East
    Asia and which had tried for hundred years to
    challenge the hegemony of China the defeat of
    China in 1894 allowed the Japanese annexation of
    Korea and Taiwan and the indemnities amounting to
    over 1/3 of Japans GNP helped Japan to finance
    further its industrialization and to put its
    currency on the gold standard, which in turn
    improved Japans credit rating in London and its
    capacity to tap additional funds for industrial
    expansion at home and imperialist expansion
    overseas. Japan was able to overtake China in
    the early 20th Century in the exports of raw silk
    and expanded its textile industries both at home
    and in China. And finally it invaded China and
    other countries in East and Southeast Asia
    against the colonial powers from Europe and later
    the USA.
  • The clash between the Europe ( USA) and
    China-centric inter-state system in East and
    Southeast Asia took place with Japan recentering
    upon itself the China-centric system.
  • G. Arrighi, P.K. Hui, H.F. Hung M. Selden,
    Historical capitalism, East and West, in G.
    Arrighi, T. Hamashita M. Selden, eds., The
    Resurgence of East Asia 500, 150 and 50 Years
    Perspectives, London, Routledge, 2003,
    pp.288-299.

26
  • 8. Chinas fiscal and political weakening was
    reflected also in the lack of progress or
    transformation of its traditional exports raw
    silk overtaken by Japan and tea replaced by those
    planted in India Sri Lanka and extensive
    penetration of imported textile products, fuel
    oil, tobaccos, and most importantly opium.
    Already in the 19th Century China suffered from
    massive outflow of silver and by the turn of the
    20th Century, its traditional trade surplus
    disappeared and replaced by trade deficits, which
    marked the final ending to the economic strength
    of China over the past millennia.

27
Relative economic strength of China versus Japan
Western countries (GDP in billion 1990 dollars)
  • Source Angus Maddison, Monitoring the World
    Economy, 1820-1992, Paris, Development Centre,
    OECD, 1995.

28
The rise of Japan in the post WWII period
  • The replacement of China by Japan in the
    China-centric system in East and Southeast Asia
    continued during the era of Pax Americana
  • a) The flying geese pattern of regional division
    of labour and industrialization with Japan as the
    head geese and the USA as the market
  • b) US economic political sanctions against
    Communist China and the socialism in one country
    strategy of China.
  • 2. Economic challenge of Japan to the USA in the
    1980s had led to trade conflict US pressure for
    the liberalization of the Japanese economy
    great fluctuation in the Yen exchange rate the
    opening up of the Japanese financial system the
    Japanese lost decade of the 1990s
  • Regional shares of World value added in
    manufacturing calculated from World Bank
    statistics (in )

29
The rise of China
  • one-country socialism political stability,
    self-contained primitive capital accumulation
    (physical capital human, social capital)
    recovery of the competitiveness of the Chinese
    economic system that allows facilitated the
    outward reorientation of the system since the
    1980s.
  • 2. Global industrial relocation to China since
    the 1990s (first from Hong Kong, Taiwan, then
    from US, Europe, Korea and from Japan) China
    becoming the world factory matching the scale of
    Britain in the 19th Century USA in the 20th
    Century but only resuming the scale before the
    18th Century.
  • 3. The massive building up of trade surplus,
    inward foreign investment foreign exchange
    reserve resembles the massive inflow of silver
    from the world into China in before the 18th
    Century.

30
  • Chinas foreign economic performance, 1985-2005
  • Unit US 100 million

31
Relative economic scale in 2004 (PPP calculation
of national GDP)
Source World Bank
32
  • Model of Triangular Trade Structure
  • Source METI, White Paper on International
    Economy and Trade, 2005

33
  • Export tends among Japan and the countries and
    regions of East Asia (totals)
  • Source METI, White Paper on International
    Economy and Trade, 2005

34
  • Export tends among Japan and the countries and
    regions of East Asia (totals)
  • Source METI, White Paper on International
    Economy and Trade, 2005

35
  • Export tends among Japan and the countries and
    regions of East Asia (totals)
  • Source METI, White Paper on International
    Economy and Trade, 2005

36
The resurgence of the China-centric trading
system in East Southeast Asia
  • From 2000, with the shifting of industrial
    production of Japan into China and the disruption
    Chinas exports have created to the Japanese led
    flying geese regional system of trade and
    investment, China is reasserting its role as the
    core area for the region and is re-establishing
    the China centric East And Southeast Asia trade
    and economic system. Whether it would lead to the
    return of the Chinese regional hegemony will be a
    major question in the coming decades.
  • China has a free trade agreement with ASEAN
    countries and is negotiating for a free trade
    agreement with Korea and Japan. Asian monetary
    system is also tending towards integration with
    the lead by Japan and China after the Asian
    Financial crisis in 1998 an Asian dollar is in
    the process of forming.

37
China-centric trading system 2003Share of its
own trade with China Hong Kong
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