Modernization and China’s “century of humiliation”

Senior Chinese leader Xi Jinping would like to remind his audience of the time after the Opium War (1839-1842), when China was “gradually reduced by foreign powers to a semi-colonial and semi-colonial society. – feudal which suffered more devastation than ever. before ”, bringing“ intense humiliation for the country ”and“ great pain for its people ”(Xi Jinping 2021).

There are different ways of assessing the West’s foray into China after the Opium War. In terms of loss of life, for example, the national civil war during China’s tumultuous 19th century, such as the Taiping Rebellion (1850-1864), eclipsed the number of casualties caused by the Opium War, perhaps. be by a factor of 1000.1 In terms of economic conditions, it is evident that the period from 1840 to 1900 was much worse than the period of China’s rapid economic progress at the end of the 20th century. Yet there is no consensus on the economic impact of the Western intervention in the 19th century in China, and more specifically, whether it harmed the Chinese economy.

In general, it is accepted that although Western colonialism has been associated with both destructive and modernizing influences in China, on the whole the Western impact has been limited in one way or another. The main reason is, it is argued, that Western influence was limited to a few dozen ports scattered over a very large country (Murphey 1974, Fairbank 1978).

In a new article (Keller and Shiue 2021), we revisit the economic impact of the Western intervention in China in the 19th century. The Treaty of Nanjing in 1842 and subsequent treaties forced China to open dozens of cities to Western traders, dramatically ending centuries in which China developed in relative isolation from the West. . These so-called treaty ports were remarkable because it was from these claimed areas that Western countries abolished Chinese trading practices and reorganized them under their leadership. In addition, Western-style courts and legal practices were introduced in China in foreign consulates that practiced extraterritoriality, according to which foreigners in China would be tried according to the laws of their home country instead of Chinese laws. From the year 1854, Westerners also managed the Chinese customs system through the Chinese Maritime Customs Service.

Figure 1 shows the evolution of Western influence in China during the 19th century. We see that the opening of conventional ports and consulates followed closely, while the establishment of customs posts was generally delayed by a few years. By the end of the 19th century, treaty ports, consulates, and customs posts were located in around 30 prefectures (just under 10% of all Chinese prefectures).

Figure 1 Evolution of foreign influence in 19th century China

We estimate the impact of Western influence by comparing results in regions of China with treaty ports, consulates or customs posts and regions without them using annual data for the years 1821 to 1899. Numbers reliable income for this period is not available. Instead, we get regional interest rates, a measure of local investment costs, using an asset valuation approach with grain prices.2 We also assess the western impact in terms of the growth of Chinese banks, industrial companies, as well as the adoption of the technology. Our analysis captures the role of non-Western countries like Japan and Russia, the influence of missionaries, but also the impact of mass violence events like the Taiping rebellion.

Figure 2 presents the first evidence that Western imperialism has been accompanied by a profound change in the structure of Chinese capital markets. While before the Opium War the northern interior regions were of paramount importance and had the lowest interest rates (left panel), the arrival of Western traders shifted attention to the Chinese coast, especially in the south, and interest rates tended to be low in those countries. regions (right panel). Before the Opium War, inland areas tended to be larger than the coast. Suzhou and Hangzhou, for example, were both larger and more important than Shanghai and Hong Kong, and although these cities were not far from the coast, they were also not located with direct access to the coast.

Figure 2 Interest rate structures in the Chinese economy

A plausible explanation for this regional shift is that the western conventional port system places more emphasis on coastal locations and on international trade that has helped the interests of western countries. Figure 2 is consistent with other work emphasizing the profound structural changes brought about in China by Western influence (eg Pomeranz 1993).

We estimate the causal impact of the West with a difference-in-differences approach in an event study context. Figure 3 shows the impact of the West on the number of industrial firms for a 60-year window before and after the opening of Western consulates. Controlling for a range of factors, including year and prefecture fixed effects, Figure 3 shows a positive impact of Western influence on the growth of industrial firms. Note also that there is no evidence of differential pre-trends in the sense that none of the coefficients before t = 0 are significantly different from zero.

figure 3 The Impact of Western Influence: Evidence from an Event Study

Additionally, we find that Western influence has increased the number of banks, business investment, as well as the adoption of steam engines and industrial machinery. Western influence has also had a positive impact on local interest rates to the extent that it has lowered them considerably, and much of the effect of falling interest rates is due to reduced risk and security spillovers as opposed to a larger supply of capital. In addition to this treaty-wearing effect, they find evidence of a distinct legal channel of influence associated with foreign consulates.

We examine the magnitude of the Western impact on the Chinese economy by performing a geographic fallout analysis.3 We do this by extending their difference-in-difference analysis by adding Western influence variables based on circular bands (“donuts”) at particular distances from treaty ports and foreign consulates. If the western impact were small, any reduction in the interest rate would have been limited to the immediate treaty port areas. The greater the impact, the greater the reduction in interest rates, and the more this reduction would be felt, permeating not only areas close to treaty ports, but also surrounding geographic areas.

We find that interest rates have fallen by more than a quarter in the immediate vicinity of ports and by almost ten percent even at distances of up to 450 kilometers from conventional ports. This decrease in the effect with geographical distance is plausible not only because transactions in the capital market become less frequent with geographical distance since distance is an obstacle to the mobility of people, but also because the dissemination of news ideas present a spatial degradation since knowledge is not perfectly codifiable. and therefore facilitated by in-person demonstration (Jaffe et al. 1993, Keller 2004).

Plotting the effects predicted for the end of the 19th century on a map of China is shown in Figure 4. The darker the color, the greater the effect of expected falling interest rates. Note that the interest rate cuts have been particularly large in areas with strong Western influence, such as the coastal areas of Jiangsu and Zhejiang provinces, as well as around Guangzhou in the south. At the same time, the geographic reach of Western influence extended far beyond the immediate vicinity of treaty ports. In fact, in only 11% of our regions, we do not estimate an effect of lower interest rates, and in three quarters of the regions has Western influence lowered the interest rate by more than 25% (at least two percentage points compared to an average interest rate of around 8%).

Figure 4 Western influence and Chinese capital markets in the era of port treaties

Figure 4 shows that the West impacted the Chinese economy in most parts of the country during the Port Treaty era.

In sum, we show that Western intervention in the 19th century played a substantial role in the creation of today’s Chinese economy. Offering the year 1842 as the turning point that explains the Chinese economy we see today predates 1921 (founding of the Chinese Communist Party), 1949 (founding of the People’s Republic of China) and 1978 (beginning of market reforms) . China’s development was not propelled simply by its own pre-1800 history or by post-1978 reforms. Almost 100 years of semi-colonization have shaped today’s Chinese economy as a economy centered on coastal areas.

The references

Corfield, J (2011), “Taiping Rebellion (1851-1864)”, Wiley Online Library.

Fairbank, J (1978), “The Creation of the Treaty System” in D Twitchett and JK Fairbank (eds), The history of Cambridge in China, Flight. 10 Late Ch’ing, 1800-1911, part I.

Feyrer, J, E Mansur and B Sacerdote (2017), “Geographic dispersion of economic shocks: evidence of the hydraulic fracturing revolution”, American Economic Review 107 (4): 1313-34.

Jaffe, A, M Trajtenberg and R Henderson (1993), “The Geographic Location of Knowledge Spillovers as Evidenced by Patent Citations”, Quarterly economic review 108 (3): p.577-598.

Kamienski, L (2017), “Opium wars”, The SAGE Encyclopedia of War: Social Science Perspectives, Flight. 1.

Keller, W (2004), “International Diffusion of Technology”, Economic literature review 42 (3): 752-782.

Keller, W and CH Shiue (2021), “The Economic Consequences of the Opium War,” CEPR Discussion Paper No. 16242.

Keller, W, CH Shiue and X Wang (2020), “Capital Markets and Cereal Prices: Evaluating the Storage Cost Approach”, Cliometrica 14: 367-396.

Murphey, R (1974), “Treaty ports and China’s modernization”, in M ​​Elvin and GW Skinner (eds), The Chinese city between two worlds, Stanford University Press.

Pomeranz, K (1993), The making of a hinterland. State, society and economy in the interior of northern China, 1853-1937, University of California Press.

Xi Jinping (2021), Speech on the 100th Anniversary of the Communist Party of China, English translation provided by Xinhua News Agency, July 1, 2021

End Notes

1 Based on figures from Kamienski (2017) for the First and Second Opium Wars (1839-1842 and 1856-1860, respectively) and from Corfield (2011) for the Taiping Rebellion. Other estimates give a broadly similar picture.

2 Local grain prices capture interest rates because the latter are part of the grain storage costs; see Keller, Shiue and Wang (2020) for an evaluation of this approach.

3 Such analyzes of geographic spillovers are common in the regional and labor economy (e.g. Feyrer et al. 2017).

Previous Fully Remote Businesses Are Hiring - 4 Ways To Make Your Application Stand Out
Next Iran seeks UNESCO beacon for gigantic geopark