Trade and Trouble

What China Can Learn from the 1640 Economic Bust

Chinese world map, drawn by the Jesuits (early seventeenth century). "Historic Maritime Maps" Donald Wigal

In 1514, the Portuguese navigator Jorge Álvares was the first European to reach China by sea. Just over 40 years later, the Portuguese leased Macau from China for an annual rent of about 600 ounces of silver. And then, 14 years after that, the Spanish colonized Manila as the hub of their transpacific trade. By 1600, trade in Chinese goods was in full swing. China became an export powerhouse, and not for the last time.

The problem for Europeans was that Chinese traders didn't need anything from Europe. Trade with China was strictly cash-and-carry—and cash meant silver. In the century or so between the first European sea contacts with China and the year 1640, European ships carried something like 100,000 tons of silver to China from mines in central Europe, Japan, and the Americas.

The massive influx of precious metal helped transform the Chinese economy from a nonmonetary economy based on feudal obligations and barter trade into a monetized economy based on market exchange. China had experimented with paper money early on, but even the government did not accept that paper as payment for its own taxes. And so the monetization of China's large economy required boatloads of foreign money—just what Europe sent.

Between 1568 and 1644, the price of silver in China (relative to gold) eased by 50 percent. By 1580, there was enough silver in the economy for the Ming dynasty to convert a variety of feudal labor and crop levies into modern taxes payable in coin. Wages and prices rose and rose as silver money became more plentiful.

Spring morning in a Han palace, by Qiu Ying (1494–1552).
Spring morning in a Han palace, by Qiu Ying (1494–1552). Wikimedia
Soon, China was the manufacturing workshop of the world, at least so far as the sailing technology of the time made that possible. The country’s two major centers of export-oriented production were the Pearl River Delta (modern Guangzhou, Hong Kong, and Macau) and the Yangtze River Delta (modern Shanghai, Hangzhou, and Suzhou). Chinatowns sprang up throughout the Spanish New World, with Spanish colonial authorities warning that Chinese imports were undercutting home industries.

Around 1640, though, the party ended; trade

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