During the 11th century, China developed sophisticated technologies to extract and use coal for energy, leading to soaring iron production.^[133] Iron production rose fivefold from 800 to 1078, to about 125,000 English tons (114,000 metric tons), not counting unregistered iron production.^{[134][citation needed]} Initially, the government restricted the iron industry, but the restrictions on private smelting was lifted after the prominent official Bao Qingtian's (999–1062) petition to the government^[135] Production of other metals also soared; officially registered Song production of silver, bronze, tin, and lead increased to 3, 23, 54, and 49 times that of Tang levels.^[136] Officially registered Salt production also rose at least 57%.^[137]

The government regulated several other industries. Sulphur, an ingredient in gunpowder – a crucial new weapon introduced during the Tang – became a growth industry, and in 1076 was placed under government control.^[138] In Sichuan province, revenue from the Song government's monopoly on tea was used to purchase horses for the Song's cavalry forces.^[139] Chancellor Wang Anshi instated monopolies in several industries, sparking controversy.^[140]

In order to supply the boom in the iron and other industries, the output of mines increased massively. Near Bianjing, the Song capital, according to one estimate over one million households were using coal for heating, an indication of the magnitude of coal use.^[141] Light industries also began to prosper during the Song, including porcelain – which replaced pottery – shipbuilding and textiles.^[141] Compared with the Tang, textile production increased 55%.^[142] The historian Xie Qia estimates that over 100,000 households were working in textile production by Song times, an indicator of the magnitude of the Song textile industry.^[113] The urbanisation rate of the Song increased to 12%, compared with 10% during the Tang.^[113]

Agriculture advanced greatly under the Song. The Song government started a series of irrigation projects that increased cultivatable land, and encouraged peasants to cultivate more land. The total area of cultivated land was greatly increased to 720 million mou, a figure unsurpassed by later dynasties.^[143] A variety of crops were cultivated, unlike the monocultures of previous dynasties. Specialised crops like oranges and sugar cane were regularly planted alongside rice.^[144] Unlike the earlier self-sufficient peasantry of the Han and Tang eras, rural families produced a surplus which could be sold. The income allowed families to afford not only food, but charcoal, tea, oil, and wine. Many Song peasants supplemented their incomes with handicraft work.^[145][146]

New tools, like the Water Wheel, greatly enhanced productivity. Although most peasants in China were still primarily rice farmers, some farmers specialised in certain crops. For example, Luoyang was known for its flower cultivation; flower prices reached such exorbitant prices that one bulb reached the price of 10,000 coins.^[147] An important new crop introduced during the Song was Champa rice, a new breed which had superior yields to earlier forms of rice and greatly increased rice production.^[148] The practice of multiple cropping, which increased yields by allowed farmers to harvest rice twice a year, was a key innovation of the Song era.^[148] Per-mou agricultural output doubled for South China, while increasing only slightly in the north. Scholars offer "conservative estimates" which suggest that agricultural yields rose at least 20% during the Song.^[149] Other scholars note that although taxable land rose only 5% during the Song, the actual amount of grain revenues taken in increased by 46%.^[149]

Agricultural organisation also changed. Unlike the Han and Tang, in which agriculture was dominated by self-sufficient farmers, or the pre-Warring States period and era of division (period between Han and Tang), which was dominated by aristocratic landowners, during the Song agriculture was dominated by non-aristocratic landowners. The majority of farmers no longer owned their land; they became tenants of these landowners, who developed the rural economy through investment. This system of agriculture was to continue until the establishment of the People's Republic of China under Mao.^[150]

During the Song dynasty, the merchant class became more sophisticated, well-respected, and organised. The accumulated wealth of the merchant class often rivalled that of the scholar-officials who administered the affairs of government. For their organisational skills, Ebrey, Walthall, and Palais state that Song dynasty merchants:

... set up partnerships and joint stock companies, with a separation of owners (shareholders) and managers. In large cities, merchants were organised into guilds according to the type of product sold; they periodically set prices and arranged sales from wholesalers to shop owners. When the government requisitioned goods or assessed taxes, it dealt with the guild heads.^[151]

Unfortunately, like their counterparts in Europe, these guilds restricted economic growth through collaboration with government to restrict competition.^[152]

Large privately owned enterprises dominated the market system of urban Song China. There was a large black market, which grew after the Jur'chen conquest of North China in 1127. Around 1160, black marketeers smuggled some 70 to 80 thousand cattle.^[153]

There were many successful small kilns and pottery shops owned by local families, along with oil presses, wine-making shops, and paper-making businesses.^[154] The "... inn keeper, the petty diviner, the drug seller, the cloth trader," also experienced increased economic success.^[155]

Song abolition of trade restrictions greatly aided the economy. Commerce increased in frequency and could be conducted anywhere, in contrast to earlier periods where trade was restricted to the 'Fang' and 'Shi' areas. In all the major cities of the Song dynasty, many shops opened. Often, shops selling the same product were concentrated into one urban area. For example, all the rice shops would occupy one street, and all the fish shops another.^[156] Unlike the later Ming dynasty, most businesses during the Song dynasty were producers and retailers, selling the products they produced, thus creating a mixture of handicraft and commerce. Although the Song dynasty saw some large enterprises, the majority of enterprises were small.^[157]

Overseas commerce also prospered with the invention of the compass and the encouragement of Song rulers.^[158] Developments in shipping and navigation technologies allowed trade and investment on a large scale. The Song-era Chinese could conduct large amounts of overseas trade, bringing some merchants great fortune.^[159] Song-era commercial enterprises became very complex. The accumulated wealth of merchants often rivalled that of the scholar-officials who administered the affairs of government.

The prosperous Song economy resulted in an increase in the minting of currency. By 1085, the output of copper currency reached 6 billion coins a year, compared to 5.86 billion in 1080. 327 million coins were minted annually in the Tang dynasty's prosperous Tianbao period of 742–755, and only 220 million coins minted annually from 118 BCE to 5 CE during the Han dynasty.^[160]

Paper receipts of deposit first appeared in the 10th century, but the first officially sponsored bills were introduced in Sichuan Province,^[161] where the currency was metallic and extremely heavy. Although businesses began to issue private bills of exchange, by the mid-11th century the central government introduced its paper money, produced using woodblock printing and backed by bronze coins. The Song government had also been amassing large amounts of paper tribute. Each year before 1101, the prefecture of Xinan (modern Xi-xian, Anhui) alone sent 1,500,000 sheets of paper in seven different varieties to the capital at Kaifeng.^[162] In the Southern Song, standard currency bearing a marked face value, was used. However, a lack of standards caused face values to wildly fluctuate. A nationwide standard paper currency was not produced until 1274, two years before the Southern Song's fall.^[163]

The Song government instituted a taxation system on agriculture in which a property value tax was collected twice every year, amounting to roughly 10% of income.^[113] However, the actual level was higher due to numerous surcharges. Commercial taxes were around 2%.^[113] In an important change from Tang practices, however, the Song did not attempt to regulate prices and markets, with the exception of the time of Wang Anshi, though it also instituted an indirect monopoly in salt, in which merchants had to deliver grain to the state before being allowed to sell salt.^[113][164]

Emperor Taizu established a Reserve Treasury as a deposit treasury to accumulate funds with the goal of recovering the Sixteen Prefectures through direct purchase or military action.^{[165]: 68–69}

In 1069, Wang Anshi, whose ideas were similar to the modern welfare state, became chancellor. Believing that the state must provide for the people, and pressed by the need for revenues to wage an irredentist war against the Xi Xia and Liao, he initiated a series of reforms. These reforms included nationalising industries such as tea, salt and liquor, and adopting a policy of directly transporting goods in abundance in one region to another, which Wang believed would eliminate the need for merchants. Other policies included a rural credit program for peasants, the replacement of corvee labour with a tax, lending peasants military horses for use in peacetime, compulsory military training for civilians, and a "market exchange bureau" to set prices. These policies were extremely controversial, especially to Orthodox Confucians who favoured laissez faire, and were largely repealed after Wang Anshi's death, except during the reign of Emperor Huizong.^[166]

A second, more serious attempt to intervene in the economy occurred in the late 13th century, when the Song dynasty suffered from fiscal problems while trying to defend themselves against Mongol invasions. The Song chancellor Jia Sidao attempted to solve the problem through land nationalisation, a policy that was heavily opposed and later withdrawn.^[167]

The prosperity of the Song was interrupted by the invasion of Jur'chen Jin in 1127. After a successful alliance with the Jin in which the Song destroyed its old enemy the Khitan, the Jin attacked the Song and sacked its capital in Kaifeng.^[168] The invasion preceded 15 years of constant warfare which ended when the Song court surrendered territory north of the Huai River in exchange for peace, despite victories by the Song general Yue Fei, who had almost defeated the Jur'chens.^[169] The southern Chinese provinces became the center of commerce. Millions of Chinese fled Jur'chen rule to the South, which the Song dynasty still held.^[170]

During the Jin-Song wars of 1214-1217, the Song paper currency depreciated significantly.^[165]: 67 It stabilized after these wars.^[165]: 67

Due to the new military pressure of the Jur'chens, the Southern Song massively increased the tax burden to several times of that of the Northern Song. The Southern Song maintained an uneasy truce with the Jin until the rise of the Mongols, with whom Song allied to destroy the Jin in 1234.^[171] Taking advantage of this, the Song army briefly recaptured their lost territory south of the Yellow River as the Mongols withdrew. However, a flood of the Yellow River, coupled with Mongol attacks, eventually forced the Song to withdraw.^[172]

Seeking to conquer China, the Mongol Empire launched a series of attacks on the Song.^[173] In the midst of war and other financial distress, in 1265 the Song's introduced a new paper currency which severely depreciated in value.^[165]: 67 By the 1270s, the Song economy had collapsed from the burden of taxes and inflation which the Song government used to finance its war against the Mongols.^[174] In 1275, the Mongols defeated the Song army near Xiangyang and captured Hangzhou,^[175] the Song capital, the following year. Song resistance ended at the Battle of Yamen, in which the last Song emperor drowned with the remnants of his navy.^[176] The destruction caused by the barbarian invasions in the later half of the Song represented a major setback in China's development.^[177]

Zhu Yuanzhang, also called the Hongwu Emperor, was born of a peasant family and was sympathetic towards peasants. Zhu enacted a series of policies designed to favour agriculture at the expense of other industries. The state gave aid to farmers, providing land and agricultural equipment and revising the taxation system.^[194] The state also repaired many long-neglected canals and dikes that had aided agriculture. In addition, the Ming dynasty reinstated the examination system.^[195]

Hongwu's successor and grandson, the Jianwen Emperor, was overthrown by his uncle, Zhu Di, called the Yongle Emperor, in a bloody civil war that lasted three years. Zhu Di was more liberally-minded than his father and he repealed many of the controls on gentry and merchants.^[196] Thus, his reign is sometimes regarded as a 'second founding' of the Ming dynasty. The expeditions of his eunuch Zheng He created new trade routes. Under Yongle's rule, Ming armies enjoyed continued victories against the Mongols, who were forced to acknowledge him as their ruler.^[197] He also moved the capital to Beijing.^[198] By Yongle's reign, China had recovered the territories of Eastern Xinjiang, Manchuria, Tibet, and those lost during the Five Dynasties and Ten Kingdoms Era.

The Ming government has been described as "... one of the greatest achievements of Chinese civilization".^[199] Although it began as a despotic regime, the Ming government evolved into a system of power-sharing between the emperor and the civil service.

The Ming government collected far less revenue than the Song dynasty. Regional tax quotas set up by the Emperor Hongwu would be collected, though in practice Ming revenues were markedly lower than the quotas declared. The gentry class won concessions from the government and resisted tax increases. Throughout the Ming dynasty, the state was constantly underfunded.^[200] Unlike earlier dynasties such as the Tang and Song, and later dynasties such as the Qing, the Ming did not regulate the economy, but had a laissez-faire policy similar to that of the Han dynasty.^[201] The Cambridge history of China volume on the Ming Dynasty stated that:

Ming government allowed those Chinese people who could attain more than mere subsistence to employ their resources mostly for the uses freely chosen by them, for it was a government that, by comparison with others throughout the world then and later, taxed the people at very low levels and left most of the wealth generated by its productive people in the regions where that wealth was produced.^[202]

Key Ming taxes included the land tax (21 million taels),^[203] the service levy (direct requisitioning of labour services and goods from civilians, valued at about 10 million taels), and the revenue from the Ming salt monopoly (2 million taels).^[204] Other miscellaneous sources of revenue included the inland customs duty (343,729 taels), sale of rank (500,000 taels), licensing fees for monks (200,000  taels), and fines (300,000 taels) and others, which all added up to about 4 million taels. The overall Ming tax rate was very low, at around 3 to 4%.^[205] However, by the end of the dynasty, this situation had changed dramatically. Zhang Juzheng instituted the single whip law, in which the arbitrary service levy was merged into the land tax. The Ming government's salt monopoly was undermined by private sellers, and had collapsed completely by the 15th century; government officials estimated that three-quarters of salt produced was being sold privately.^[206]

Zhu Yuanzhang had promoted foreign trade as a source of revenue while he was a rebel, but sharply curtailed this with a series of sea bans (haijin) once in power.^[208] These proclaimed the death penalty for private foreign traders and exile for their family and relatives in 1371;^[209] the foreign ports of Guangzhou, Quanzhou, and Ningbo were closed in 1384.^[210] After the ´voyages to the western oceans´ between 1405 and 1433, which had shown China to be technically ahead shipbuilding, a restrictive closed-door policy towards long-distance trade was adopted.^[211] Legal trade was restricted to tribute delegations sent to or by official representatives of foreign governments,^[212] although this took on an epic scale under the Yongle Emperor with Zheng He's treasure voyages to Southeast Asia, India, and eastern Africa.^[201] The policies exacerbated "Japanese" piracy along the coasts, with many Chinese merchants joining their ranks in an illegal trade network the Ming were unable to curtail. The sea bans were finally ended in 1567,^[201] with trade only prohibited to states at war with the throne. Needham estimated the trade between the end of the ban and the end of the dynasty (1567–1644) at about 300 million taels.

In addition to small base-metal coins, the Ming issued fiat paper currency as the standard currency from the beginning of the reign until 1450, by which point – like its predecessors – it was suffering from hyperinflation and rampant counterfeiting. (In 1425, Ming notes were trading at about 0.014% of its original value under the Hongwu Emperor.)^[213] Monetary needs were initially met by bullion trading in silver sycee, but a shortage of silver in the mid-15th century caused a severe monetary contraction and forced a great deal of trade to be conducted by barter.^[214] After the single whip law substituted silver instead of rice as the means of paying taxes, China, which had not been much interested in European or Japanese goods, found that the silver of Iwami Ginzan and Potosí was too profitable and important to restrict.^[215][216] Inflows of Japanese (imported via Macau by the Portuguese) and Spanish silver (brought by the Manila galleons) monetized China's economy, and Spanish dollars became a common medium of exchange.^[217] China was part of the global silver trade.

The size of the late Ming economy is a matter of conjecture, with Twitchett claiming it to be the largest and wealthiest nation on earth^[200] and Maddison estimating its per capita GDP as average within Asia and lower than Europe's.

After 1400, Ming China's economic recovery led to high economic growth and the revival of heavy industries such as coal and iron. Industrial output reached new heights surpassing that of the Song. Unlike the Song, however, the new industrial centres were located in the south, rather than in North China, and did not have ready access to coal, a factor that may have contributed to the Great Divergence.^[219] Iron output increased to triple Song levels, at well over 300,000 tons.^[220] Further innovations helped improve industrial capability to above Song levels.^[133] Many Ming-era innovations were recorded in the Tiangong Kaiwu, an encyclopaedia compiled in 1637.

Under the Ming, some rural areas were reserved exclusively for the production of cash crops. Agricultural tools and carts, some water-powered, allowed the production of a sizable agricultural surplus, which formed the basis of the rural economy. Alongside other crops, rice was grown on a large scale.^[221] The population growth and the decrease in fertile land made it necessary that farmers produce cash crops to earn a living.^[222] Landed, managed estates grew substantially; while in 1379 only 14,241 households had over 700 mou, by the end of the Ming some large landowners had over 70,000 mou.^[223] Increasing commercialisation caused huge advances in productivity during the Ming dynasty, allowing a greater population.^[224]

Many markets, with three main types, were established in the countryside. In the simplest markets, goods were exchanged or bartered.^[222] In 'urban-rural' markets, rural goods were sold to urban dwellers; landlords residing in cities used income from rural landholdings to facilitate exchange in the cities. Merchants bought rural goods in large quantities and sold them in these markets.^[222] The 'national market' developed during the Song dynasty became more important during the Ming. In addition to the merchants and barter, this type of market involved products produced directly for the market. Many Ming peasants no longer relied upon subsistence farming; they produced products for the market, which they sold for a profit.^[222] The Cambridge history states about the Ming that:

"The commercialisation of Ming society within the context of expanding communications may be regarded as a distinguishing aspect of the history of this dynasty. In the matter of commodity production and circulation, the Ming marked a turning point in Chinese history, both in the scale at which goods were being produced for the market, and in the nature of the economic relations that governed commercial exchange.^[225]"

At the end of the Ming dynasty, the Little Ice Age severely curtailed Chinese agriculture in the northern provinces. From 1626, famine, drought, and other disasters befell northern China, bringing peasant revolts. The Ming government's inability to collect taxes resulted in troops frequently not being paid. Many troops joined the rebels, worsening the situation. In 1644, the rebels under Li Zicheng took Beijing, ending Ming rule in the north.^[226] Regimes loyal to the Ming throne (collectively called the Southern Ming) continued to reign in southern China until 1662.^[226] Recent historians have debated the validity of the theory that silver shortages caused the downfall of the Ming dynasty.^[227][228]

Although the Qing dynasty established by the Manchus had quickly seized Beijing in 1644, hostile regimes still existed in other parts of China, and it would take the Qing a few decades to take control of all of China. During this period, especially in the 1640s and 1650s, people died of starvation and disease, which resulted in a decline in population. In 1661, facing attacks by overseas Ming loyalist forces, the Qing government adopted a policy of clearing the shore line, which ordered all people residing along the coast of Zhejiang to the border with Vietnam to move 25 kilometres (16 mi) inland and guards were positioned on the coast to prevent anyone from living there. Thus, until 1685 few people engaged in coastal and foreign trade. During these decades, although grain harvests improved, few participated in the market because the economy had contracted and local prices hit bottom. Tang Zhen, a retired Chinese scholar and failed merchant described a dismal picture of the market economy of the preceding decades in his writing in the early 1690s.^{[n 4]}

The situation was significantly improved after the peace was recovered. By the 1680s the Qing had consolidated its control over the empire, and favourable economic developments resumed. Those developments resemble the late Ming expansion, but the early Qing market had more interregional trade, depended more on overseas markets, and had a larger population. Meanwhile, the relationship between the market and customary and command economies changed.^[233]

Up until the Opium Wars, China's economy was much closer to Smith's ideal system of a low-intervention State than the British economy was, with taxation being 1-2% of the GDP against 10% for Britain.^{[234][page needed][235]}

After crushing all Ming royalists in the south by 1683, the Kangxi Emperor revoked destructive measures, such as princely estates and the clearing of the shoreline. He quickly recovered the war-ravaged economy and initiated a period of great prosperity in history, known as the High Qing era. Under his successors' reigns, the Qing dynasty reached its peak between the reigns of the Kangxi Emperor and the Qianlong Emperor.^[236] Thus this period is also known as the Kang–Qian Age, during which Kangxi and his successors controlled the areas of Xinjiang and Tibet, conquered the Dzungar Khanate^[237] and exercised tighter control over these regions than the Ming dynasty had. This removed a major threat to China and incorporated the regions of Xinjiang and Mongolia into the Chinese economy.

During the Qing dynasty, foreign food crops, like the potato, were introduced during the 18th century on a large scale.^[238] These crops, along with the general peace in the 18th century, encouraged a dramatic increase in population, from approximately 150–200 million during the Ming to over 400 million during the Qing.^[239] During the 18th century, markets continued to expand as in the late Ming period. To give people more incentives to participate in the market, they reduced the tax burden in comparison with the late Ming, and replaced the Corvée system with a head tax used to hire labourers. China continued to export tea, silk and manufactures, creating a large, favorable trade balance with the West.^[240]

The Qing government intervened considerably in the economy, partly in the hope to ensure social stability. The monopoly on salt was restored and became one of the greatest sources of revenue for the state. Qing officials tried to discourage cultivation of cash crops in favor of grain.^[241] Wary of the power of wealthy merchants, Qing rulers limited their trading licences and usually refused them permission to open new mines, except in poor areas.^[242] Merchant guilds proliferated in all of the growing Chinese cities and often acquired great social and even political influence. Rich merchants with official connections built up huge fortunes and patronized literature, theater and the arts. Cloth and handicraft production boomed.^[240] Scholars also describe the period from the late Ming up to the High Qing era as a second commercial revolution, which was even more transformative than the first that occurred earlier during the Song dynasty. By the end of the 18th century what historians sometimes refer to as a "circulation economy" or "commodity economy" developed, in which commercialization penetrated local rural society to an unprecedented degree.^[243][244] In Timber and Forestry in Qing China, Zhang Meng chronicled the role of interregional resource markets. Her study of the timber trade show how merchants and landowners developed long-distance supply chains to sustain forestry over long economic cycles.

Copper was obtained from Japan.^{[245][246][247][248][249][250]} Copper also came from Yunnan.^[251]

In the late 18th and early 19th centuries, productivity stagnated and government revenues began to decline.^[252]: 5 Along with a decline in revenue, the Imperial state's administrative capacity began to decrease.^[252]: 5

Qing trade policy was broadly isolationist, although considerably less strict than the Sakoku policy of the contemporary Edo-period Japan (1603–1868) and the isolationist policy of the contemporary Joseon-dynasty Korea. The Qianlong Emperor (r. 1735–1796) notably proclaimed:

Our land is so wealthy and prosperous that we possess all things. Therefore, there is no need to exchange the produce of foreign barbarians for our own.^[253]

Owing to Ming loyalists like Koxinga, the regent Prince Rui resumed the ban on private foreign trade in 1647. In fact, like the Ming before it, the Qing Empire depended on foreign trade for the Japanese and South American silver that underpinned its monetary system, and the ban was not effective until a more severe order followed in 1661^[254] upon the ascension of the Kangxi Emperor. Chinese in Guangdong, Fujian, Zhejiang, Jiangsu, and parts of Shandong were forcibly removed from the coast over the next three years in the Great Clearance.^[254] Ships were destroyed, and foreign trade was again limited to that passing through Macao.^[254] Following high-level memorials to the throne, the evacuation was no longer enforced after 1669^[255] and, following the destruction of Tungning on Taiwan, the other bans were lifted in 1684.^[254] The year after that, customs offices were established in Guangzhou, Xiamen, Ningbo, and Songjiang to deal with foreign trade.^[256] The enormous emigration that attended this policy^[257] – along with rumors of a Ming pretender in the Philippines – caused the Kangxi Emperor to ban trade in the South China Sea and to order the émigrés' return upon penalty of death in 1717; this was rescinded ten years later, but the attendant port inspections and restrictions continued.^[256]

The East India Company's discovery that the prices and duties at Ningbo were both much lower than those at Guangzhou prompted them to begin shifting their trade north in 1755.^[258] Following the Qianlong Emperor's failed attempt to discourage this through higher fees, he declared in the winter of 1757 that – effective the next year – a single ghetto southwest of Guangzhou (then romanized as "Canton") was to be the only Chinese port permitted to Western traders,^{[258][n 5]} beginning the Canton System. Under this system, a guild of approved and bonded Chinese merchants monopolized China's foreign export trade in exchange for ensuring their foreign partners' good behavior and payment of taxes. Myers and Wang have concluded that, regardless of these restrictions, trade between China and Europe grew at an average annual rate of 4% between 1719 and 1806, doubling the volume of trade every 18 years.^[259] This helped China's interior markets and its coastal city ports, providing additional demand for domestic products. Guangzhou in particular saw the growth in trade of specialty export porcelain and export artwork designed to cater to the interests of the European factors. Some members of Guangzhou's Cohong were counted among the richest men in the world;^{[citation needed]} Howqua personally contributed a third of China's entire reparations due after the First Opium War of 1839-1842. The policy also normalized Guangzhou's tax base and the inflow of foreign silver, which persisted as one of the biggest imports from the outside. Due to the incessant need for silver in the Qing economy, the metal had become a resource of national importance. However, restricting imports mostly to bullion exerted strong pressure on the British – for whom tea had become the national drink over the course of the 18th century^[260] – to find any means possible to adjust the Anglo-Chinese balance of trade. After several embassies failed to persuade the Chinese to expand legal trade, a refusal traditionally credited the refusal of the Macartney Embassy of 1793 and of others to kowtow or to observe other niceties of Chinese protocol, the solution turned out to be smuggled Indian opium. Estimates suggest that between 1821 and 1840, as much as one-fifth of the silver circulating in China was used to purchase opium.^[261]

According to Li Xiantang, silver imports made China richer, but it did not open up opportunities of the sort that the Industrial Revolution was opening in Britain and western Europe. Instead, China slipped into the "pitfall of high equilibrium" due to excessive consumption of resources. Xiantang argues:

The growth of population and income and the polarization of the economy and society resulted in increasing pressure on resources. This restricted the demand from the bottom of society, enabling Asia to acquire cheap labor more easily than other areas, but it also led to the decline of production and trade....It was this short-lived prosperity that strangled the Chinese nation. Above all, the import of silver helped nurture the prosperity of the primitive handicraft industry, that is, so-called budding capitalism, and this was the last revival of the self-sufficient small peasant economic system. It retarded its own decline through expansion within the existing framework of productive relations, but the entire society fell into the "pitfall of high equilibrium." Silver made the economic wheels turn faster, but failed to work out a new institutional paradigm of economic development.^[262]

Alongside the illegal supply of opium, in the late-18th and early-19th centuries Russian, British and American entrepreneurs developed luxury-goods trading systems with Qing China based largely on the supply of furs from the northern Pacific Ocean region.^[263]

Within the borders of Qing territory, inter-regional and inter-provincial trade exploded in popularity, developing and expanding upon the market economy that developed in the Ming and Song periods.^[264] Trade between markets at the village, regional, and inter-provincial levels developed into a network that covered much of the Dynasty's territory and enriched many trade centers such as Suzhou. Trade between provinces in staple goods such as grain and cotton, each grown in specialized provinces and shipped around the state, moved goods within Qing borders at an unprecedented rate, a rate encouraged by the Qing dynasty's elimination of many restrictions on domestic trade, such as trading cartels.^[265]

Although within traditional Confucian doctrine Merchants, because they did not create anything within society, did not hold high societal standing, merchants became incredibly rich off of this domestic trade. From petty merchants at the local village level to merchants moving between metropolitan centers of trade and production, many traders joined the Dynasty's inner trade.^[265] These merchants, often those who studied for the civil service exam but could not find a post or pass the exam, gained wealth and prosperity within their new profession.^[266] Often many of these merchants formed together to create trade guilds, conglomerations of businessmen within trading centers, particularly wealthy metropolitan trade centers. These guilds, despite their low traditional status, became powerful forces for change within their city centers, participating in philanthropic endeavors and contributing to city upkeep.^[265] In addition to their blossoming power within their metropolitan cores, these merchants also utilized their wealth to gain social status within the Qing hierarchy by purchasing license as scholars, thus elevating themselves within the Confucian hierarchical system.^[267]

Although certain provinces and areas began to focus their production on highly in-demand staple crops such as cotton or foodstuff, others increased their production of cash crops, an act that spurred on development of local production warehouses for products such as silk textiles or porcelain pottery.^[265]

Despite its incapacitating effects,^[261] existing bans on the opium trade in China were generally ignored until the 1833 Government of India Act eliminated the East India Company's monopoly on British trade with China. British officials noted the unrestrained influx of new smugglers was greatly alarming the Chinese but were unable to rein them in before the viceroy Lin Zexu placed the foreign factories under complete blockade, demanding the surrender of all opium held in the Pearl River Delta. The British were only able to provide it after their superintendent guaranteed to indemnify the loss. The sum turned out to be so large (£3,000,000) that it prompted the First Opium War,^[268] The 1842 Treaty of Nanking – the beginning of the unequal treaties that restricted Qing sovereignty in the 19th century – is generally taken to have ended China's isolation, with the opening of the ports of Xiamen ("Amoy"), Fuzhou ("Fuchow"), Ningbo ("Ningpo"), and Shanghai, but legal trade continued to be limited to specified ports until the end of the dynasty. Nonetheless, the war began a pattern of war, defeat, concessions, and reparations, further weakening the Chinese government and economy through the outflow of silver.^[269]

Anger at Qing concessions and surprise at their weakness was already prompting rebellions before disastrous flooding in the early 1850s – inter alia, shifting the mouth of the Yellow River from south of the Shandong peninsula to north of it – ruined and dislocated millions. In 1851, Hong Xiuquan began a revolt against the Qing dynasty, proclaiming its rulers to be "filthy barbarians and beasts" who had "led China into despair". His Taiping Rebellion quickly took control of much of southeastern China.^[270] With aid from the British and French, the Qing defeated the rebels, but at an ultimate cost of over 20 million lives. Lasting until 1871, the Taiping Rebellion was one of the bloodiest wars in history and devastated the Qing economy, which had not been helped by the outbreak of a Second Opium War in 1856.^[271] At the same time, unrest in the Altishahr and Tarim Basin areas of Xinjiang in China's far north west proved a further drain on the imperial treasury. The maintenance of army garrisons to maintain order in Xinjiang and its adjunct administration cost tens of thousands of taels of silver annually, which required subsidies from agricultural taxes levied in the wealthier provinces.^[272]

Following the Taiping Rebellion, some Manchu nobles acknowledged that reforms were necessary. They instituted the Self-Strengthening Movement, which undertook limited modernizations primarily aimed at China's military industry. The army was reequipped and a modern standing navy developed. Most of the Manchu nobility opposed these developments, including the limited industrialization that accompanied them.^[273] The Self-Strengthening Movement also lifted the late Qing ban on mining.^{[274]: 7–8}

Historically, Chinese governments had budgetary surpluses.^[275]: 6 After the Sino-Japanese War of 1894-1895, the Qing began to run budget deficits and accumulated large amounts of debt.^[275]: 6 This trend of budget deficits and growing debt continued through the Republic of China period and ended after the Chinese Civil War when the Communists established a policy of balancing the budget or running a surplus.^[275]: 6

After defeat by the Japanese in 1894, the Self-Strengthening movement became discredited. In 1911, the Xinhai Revolution overthrew the Manchus and established the Republic of China. The attendant era of warlords and civil war accelerated the decline of the Chinese economy, whose percentage of the world gross domestic product rapidly fell,^[276] although at the time Europe and United States also went through Industrial and Technological Revolution that jumped up their share.^[8]

After defeating China in two wars, Great Britain secured treaties that created special rights for it and for other imperialist powers including France and Germany, as well as the United States and Japan. They took control of a number of "treaty ports," especially Shanghai. The primary goal was trade, but the port cities had a major long-term impact on the Chinese economy, society, and culture. Above all Shanghai became the dominant urban center. Tianjin, and Shenyang followed; Hong Kong, although a British colony rather than a treaty port, was similar. Foreigners were welcomed and had stable safe bases, as did Christian missionaries. Outside the ports the only foreigners were occasional Christian missionaries, and they often encountered serious difficulties. The other 89 cities that became treaty ports between 1842 and 1914 were of minor importance.^[277][278]

In stark contrast to the dramatic rapid modernisation of Japan in the late 19th century, China's Manchu leaders followed a conservative path. China's communications with the outside world were dramatically transformed in 1871 when the Great Northern telegraphic company opened cables linking Shanghai to Hong Kong, Singapore, Nagasaki, and Vladivostok, with connections to India and Europe. The first telegraph inside China, however, was a short line between Shanghai and Tianjin that opened in 1881.^[279][280] China's first modern commercial treaty with Japan was signed on the basis of equality in 1871. As part of its diplomatic opening China established legations in Tokyo, London, Berlin, Washington, Madrid, and St Petersburg in 1877–1880. Everyone carried optimistic expectations of highly profitable trade with China's hundreds of millions of consumers. It did not happen. By 1890 the total value of all Chinese imports and exports to the outer world was only £50 million, less than many smaller countries. Europe made its own porcelain and silk; China grew its own opium. The only major new product was kerosene (for lamps) brought in by the American company Standard Oil. China was too poor, too self-sufficient, too lacking in railways for profitable trade relationships.^[281][282]

Significant modernisation did take place in Shanghai, Hong Kong and to a lesser extent in the other port cities. The Shanghai International Settlement rapidly developed into one of the world's most modern cities, often compared to Paris, Berlin and London.^[283] It set the standard of modernity for China and all of East Asia. In Shanghai the British and American settlements combined in 1863 into an international settlement, with the French settlement operated separately nearby. The foreigners took out long-term leases on the land, and set up factories, offices, warehouses, sanitation, police, gardens, restaurants, hotels, banks and private clubs. The Shanghai Municipal Council was created in 1854, with nine members who were elected by three dozen foreign landowners at first, and by about 2,000 electors in the 1920s. Chinese residents comprised 90% of the total population of Shanghai but complained about taxation without representation. Eventually the Council admitted five Chinese representatives.^[284]

The European community promoted technological and economic innovation, as well as knowledge industries, that proved especially attractive to Chinese entrepreneurs as models for their own cities across the growing nation.^[285] Port cities combined a number of leadership roles. First of all they were the major port of entry for all imports and exports - except for opium, which was handled by smugglers in other cities.^[286] Foreign entrepreneurs introduce the latest European manufacturing techniques, providing a model followed sooner or later by all of China. The first establishments focused on shipbuilding, ship repair, railway repair, and factories producing textiles, matches, porcelain, flour, and machinery. Tobacco, cigarettes, textiles, and food products were the specialty in Canton. Financing was handled by branch banks, as well as entirely new operations such as HSBC -the Hong Kong and Shanghai Banking Corporation, which remains a world-class establishment into the 21st century.^[287] Across the modernising world railway construction was major financial and industrial endeavor, usually led by the British. Investments now poured into building a railway-plus-telegraph system knitting China together, connecting the treaty ports, and other major cities, as well as mining districts and agricultural centers.^[288] Chinese entrepreneurs learned their skills in the port cities, and soon applied for and received bank loans for their own startups. Chinese merchants headquartered there set up branches across the Southeast Asia, including British Singapore and Malaya, the Dutch East Indies, French Indochina and the American Philippines.^[289]

The information industry flourished in the port cities, with printing shops, newspapers, magazines and pamphlets in Chinese and European languages. Book publishers often featured Chinese translations of European classics in philosophy, politics, literature and social issues.^[290] According to historian Klaus Mühlhahn:

This vast network, with Shanghai as its center, spurred the transformation of the Chinese urban population. In their thoughts, tastes, and daily activities, the educated and affluent groups of the urban population began to abandon traditional ways of living and started to embrace what they saw as modern lifestyles.^[291]