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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,

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Presentation on theme: "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,"— Presentation transcript:

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 16 th 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 1.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 ( ) 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-8 th 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 ), 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 , Oxford, Oxford University Press, 1989.

9 2. The disintegration of the Tang Dynasty ( ) 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, 1989:346)] 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 ( ) 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 ( ), 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 ( ) 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)* a)In the early 16 th Century, the gold/silver ratio in China stood at 1:6, while the ratio hovered around 1:12 in Europe, 1:10 in Persia and 1:8 in India; In the 1590s the ratio was 1:7 in Canton, 1:12.5/14 in Spain, 1:10 in Japan & 1:9 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 16 th & early 17 th Century; the Manila galleons alone carried over 50 tons of silver annually to China throughout the 17 th 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-18 th Century, The Journal of World History, vol.13, no.2, (Fall 2002), pp

14 2. The Mexican cycle ( ) a)In the first half of the 18 th Century the gold/silver ratio in China remained fairly constant at 1:10-11 in contrast to the ratio of 1:15 in Europe. The premium was only 50%, but the volume exported to China was much higher than in the previous cycle. b)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. c)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. d)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: 1.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. 2.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 19 th Century Source: Takeshi Hamashita, Tributes and treaties: maritime Asia and treaty ports networks in the era of negotiation, , 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, , 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 Europe Britain SE ASIA China Africa Americas Manila Wold trade in 18th to 19th Century opium cowries tea silver sugar gold cowries slaves

22 The decline of China and the China-centric trading system 1.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. 2.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. 3.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 19 th 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

23 4.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 18 th 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 ** 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 19 th 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 19 th 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 20 th 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

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 19 th Century China suffered from massive outflow of silver and by the turn of the 20 th 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, , Paris, Development Centre, OECD, advanced western countries: UK, USA, France, Germany, Italy, Austria China Japan

28 The rise of Japan in the post WWII period 1.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 %) East Asia North America Total100

29 The rise of China 1.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 19 th Century & USA in the 20 th Century but only resuming the scale before the 18 th 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 18 th Century.

30 Chinas foreign economic performance, Unit: US$ 100 million

31 Relative economic scale in 2004 (PPP calculation of national GDP) USAEuropean Monetary Union JapanIndiaKorea + ASEAN 5China (plus Hong Kong, but not Taiwan) 20.79%15.44%6.74%6.01%5.38%13.10% Source: World Bank

32 Model of Triangular Trade Structure Source: METI, 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, 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, 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, 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: 2003 Share of its own trade with China & Hong Kong ExportsImportsOverall trade Japan18.52%20.08%19.22% Korea Rep.25.50%15.17%20.55% Singapore17.03%11.07%14.23% Malaysia18.05%10.90%14.82% Thailand12.50%9.42%11.00% Indonesia8.17%9.75%8.72% Philippines14.15%8.70%11.35% Vietnam8.12%18.39%13.79% Burnei6.72%80.96%7.79% Myanmar7.25%17.81%26.82% Cambodia1.69%42.45%21.84% Laos5.01%20.33%13.79%


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