Ch 16 - The End of Asian Isolation

The Country Trade

The British East India Company dominated England's trade with China, monopolized the production of opium in India and became the world's leading exporter of opium to China in the early 19th century. The profitability of drug smuggling and the willing connivance of Chinese officials created problems with staggering implications for the Qing dynasty.

Each year, from September through March, the "Barbarian Houses" along Canton's waterfront were opened to foreign merchants. It was the only place and time of year that foreign trade was permitted in China. The local administration - the Hai Guanbu, the Viceroy and the Governor - tread a careful path with foreign traders, trying to set fees, restrictions and regulations stiff enough to milk the foreign trade for as much as they could grab, but not so stiff as to enrage the foreigners to the point of rupturing the arrangement. This was hardly a business. It was a racket. The British fought this battle of wits with conciliation and forbearance and by playing on the Chinese sense of "face" and social status. Any other course would have inevitably led to conflict and with conflict came expense and with expense came a loss of profits.

Whenever the Chinese refused to redress British grievances over trade matters, British merchants reacted with such outrage and anger that it caused the Cohong, the Hai Guanbu, and the imperial court in Beijing to fear for their lucrative perquisites. It also effectively threatened Canton officials with imperial punishment for failing to "soothe the foreigners." The immutable forces at work within this delicate balance eventually made the restrictive trade situation intolerable to foreign interests in East Asia.

The British East India Company's success in China hinged on three principal commodities. The first was textiles. Raw cotton from India to supply the cotton textile industry in nearby Soochow and Sinkiang provinces remained one of Canton's chief imports until well into the 19th century. The second was tea, Britain's "foot in the door" in China. A well-established barge and coolie transport system moved large consignments of tea and silk through Jiangxi Province to Canton where the East India Company held a virtual monopoly on the export-import tea market between India and Canton. As the China trade expanded during the 18th century, the volume of Company trade increased so dramatically and so outdistanced its rivals that the China trade essentially became the exchange of goods between China and Great Britain.

Canton became the focal point for the accumulation of capital, the creation of commercial trade mechanisms and the expression of western commercial interests. The British paid for all their tea and silk with silver, which led to the accumulation of vast amount of hard currency in the hands of Canton's Chinese merchants. Constantly pressured by Beijing for "contributions" to the government, the hong merchants frequently found themselves short of money and went into debt with the East India Company, which often advanced them the money to buy the next season's consignments of tea and silk. So much silver flowed into China that British merchants soon found themselves short of hard currency. Unfortunately, there was no legal process in China for collecting the growing volume of unpaid debts owed to foreign merchants and the Company by the hong.

Britain pressed the Chinese government for a free trade policy that would even out the flow of silver between the two countries, but the Manchu dynasty stood firm and refused to budge. In an attempt to offset this nearly one-way flow of silver into the Manchu treasury, the British began to introduce a third principal commodity into the China trade, one that quickly became key to the East India Company's success in China. It was the most profitable and most odious commodity of the China trade - opium.

The opium poppy first arrived in China in the late 7th or early 8th century by way of the Arabs and the Turks, who manufactured the drug from the sap of the poppies grown in the Middle East and in India. The poppy's medicinal properties had long been used in China and Europe, where opium was used mainly as a sedative. In the Middle East and India however, it was taken as a stimulant, particularly when the user was looking for instant courage. A sixteenth century French naturalist observed that, "There is no Turk who would not buy opium with his last penny ... because they think that they become more daring, and have less fear of the dangers of war."

At first, the Chinese burned small quantities of opium in the flame of a candle and inhaled the fumes. The idea of smoking opium mixed with tobacco originated in Formosa in 1620 and was later refined after the American habit of smoking tobacco found its way into China by way of the Spanish trade base in Manilla. Opium "smoking" developed into a serious problem that spread to Fujian and Guangdong Provinces during the 1660s. Disturbed by reports about this new fad in 1729, Emperor Yongzheng decreed that opium must no longer be imported, except under license. Opium had already won too many adherents to be stopped a mere imperial decree and the drug flow defiantly continued, just as in those countries which had tried to enforce prohibitions against tobacco a century before.

Opium addiction spread rapidly in China and became a social evil more serious than contemporary Britain's problems with "gin drinkers." The Imperial edict of 1796, as well as those issued after 1800, prohibited the import or production of opium in China based on moral grounds and an intense dislike of foreigners. Unfortunately, China lacked a well-organized customs service, had an ineffective navy and exhibited no sense of moral responsibility in public administration, which led to a situation where Qing policy and official practice frequently worked in opposition to each other. Furthermore, opium was paying its own way and official connivance and corruption grew in step along with the increased drug trade. Thus, while higher officials issued edicts of prohibition and lesser officials exploited the opium trade for personal profit, the Chinese government found itself incapable of completely stopping the problem.

Throughout the 18th and early 19th century, the East India Company focused on consolidating control over its growing business empire in India. Since trade was the Company's overriding goal, the British found it expedient to tolerate India's strange ways of life, including the production and use of opium. The Company faced a greater threat from the occasional troublesome state or local warlord who insisted on interrupting the free flow of trade than it ever faced from opium and made felt no obligation to suppress opium consumption in India as a danger to health, law and order. So long as it remained primarily a mercantile organization, the Company faced no threat from opium apart from the risk of addiction.

During the early years of the opium trade, most of the drug passed through Macao from Turkey courtesy of the Portuguese. The two other principal sources of opium at the time were the Native States in western India and Bengal Province, where the Mogul Empire held a monopoly on opium production. Although the Mogul Empire tried to restrict consumption solely within its domain, it was willing to sell opium to the East India Company, whose ships began carrying opium under license to China and the East Indies. After the British took control of Bengal beginning in 1757, including the Mogul's opium monopoly, the Company's rapacious and self-aggrandizing behavior proceeded to drive the once rich province into a state of near destitution.

When Lord Warren Hastings became Governor of Bengal and took over management of the East India Company in 1772, he immediately embarked on a course of judicial and financial reform, law codification, and the suppression of banditry. Under Lord North's Regulating Act of 1773, the British Parliament created a four-member Council to guide the newly created governor-generalship in India. The following year, Hastings was appointed the first Governor-General of British India at Calcutta and empowered conduct the Company's affairs, with the Council's advice, and required to submit periodic reports on the administration of India to the British Prime Minister. Through this Act, the British Government increased its control over the Company's political, military and financial affairs and became directly involved in India.

For years, opium represented only a small percentage of the total foreign trade passing through Macao and Canton. When Emperor Yongzheng banned the selling and smoking of opium by imperial edict in 1729, the total influx of opium was only 200 chests per year. Each chest weighed about 133lbs. Opium was legally admitted into China as a medicine on the payment of a duty of about $3 per chest. With an estimated population of some 300,000,000 people, China represented a tremendous potential market and Governor-General Hastings, never one to walk away from a chance to increase Company profits, eagerly set out to exploit and expand the opium trade. Hastings had few illusions about what he was about to do, having once described opium as a "pernicious commodity .... which the wisdom of the Government should carefully restrain from internal consumption [in British India]." Foreign commerce was a different matter.

Foreign trade with China was allowed only at Canton, where the Company already dominated British trade, including opium brought in under license. Trade and money represented the British East India Company's foremost interest from the day it was created and Lord Hastings knew the Company might forfeit its trading rights if it were ever caught smuggling opium into China. When war with the Dutch temporarily closed the opium market in Britain's colonies in the East Indies, he switched a consignment to Canton, carried aboard a privateer armed at Company expense. Canton's hong merchants blackmailed the Company by threatening to disclose the illegal shipment and forced its agents to sell the opium for a ridiculously low price. Well aware of Chinese prohibitions against opium, the Company had to pretend it was not engaged in opium smuggling to avoid jeopardizing its legal commercial business, particularly the lucrative tea trade.

The Company perfected the duplicitous technique of monopolizing the production of opium in India while simultaneously disavowing itself of any participation in its importation to China. It managed this trick by selling its India opium to the owners of merchant ships commanded by Englishmen, Indians and Parsees who were prepared to smuggle it into China. The Company granted charters to these private merchant ships, which then sailed under license between India and China. Although each license contained a clause that required them to transport East India Company opium and attached a penalty for transporting opium from any other source, the Company always included a statement in the public sailing order that prohibited the carriage of opium, "lest we be implicated." The "country trade," as it was called, provided a safe and increasingly lucrative method of distribution that accounted for almost thirty percent of all British trade with Canton between 1764 and 1800.

Technically, the East India Company was not involved in smuggling, although by any other measure it was deeply involved. "Country ships" never sailed under the Company's flag, but were licensed and financed by the Company to carry opium out of India. The Company's merchants in Canton collected payment for the opium from the Chinese merchants who bought it. Whenever the Chinese took measures to crack down on this traffic, the Company's Canton agents warned that sales would likely be delayed until they could agree on a new bribery scale to compensate for the additional risk taken by the "officers and police people employed to prevent the sales." The bribery system in Canton became so well-established, that by 1820, "country ships" were boldly sailing up the great Bay of Canton to Whampoa anchorage with complete confidence that Chinese officials would "look the other way" while opium consignments were unloaded.

The new Canton Governor, determined to carry out the emperor's orders, or at least to appear so, arrested a number of the Chinese involved and ordered that all ships sailing up the Canton River must be searched. Any ship discovered transporting opium would have not only the opium, but its entire cargo confiscated and would be permanently banned from the China trade. The governor's order ultimately forced the drug smugglers out of the Canton area, but only as far as Lintin Island at the mouth of the Bay of Canton. On Lintin, the smugglers established what was essentially a British base of operations for an elaborate drug smuggling system designed to bring opium into China. Lintin not only saved port duties for the larger ships, it was free from Chinese interference and ideally situated for rapid delivery of opium to eager distributors. As a result, the volume of Indian opium imported into China quadrupled during the 1820s.

The British Government in India, which the East India Company had virtually become, purchased entire poppy harvests in their territories with the deliberate intention of processing the opium and sending the bulk of it to China. After taking its lead from the Portuguese in 1773, the Company established a vertical monopoly on opium that covered everything from seeding and cultivation to selling the finished product to private traders at "drug auctions" in Calcutta. The merchant owners of the "country trade" purchased chests-of-drawers (opium chests) packed with an average load of about about 140 lbs. of opium pressed into balls about the size of a small grapefruit. Loaded aboard fast moving and well-armed ships, the opium was then carried to Lintin Island under Company license. The "opium clippers," more than a match for any Chinese junk sent to intercept them, quickly off-loaded their cargoes at Lintin and returned to India for more.

At Lintin, the opium was kept aboard depot (receiving) ships, unseaworthy hulks used as floating warehouses. Chinese smugglers who paid for the opium in advance contacted their suppliers through offices in Canton's "Barbarian houses" and made arrangements for delivery. Opium consignments were then either carried further up the China coast by "country ships," or transferred to sleek, shallow-draft boats manned by thirty to forty Chinese coolies. These "fast crabs," or "scrambling dragons," looked like centipedes running across the water as they evaded customs patrols and skimmed over sandbars and shallows to run up the numerous small creeks and inlets around Canton, where a host of receiving agents awaited to store the opium in floating warehouses for distribution to pushers.

Princes in the Indian Native States, encouraged by rising opium prices, increased production of their high-quality "Malwa" opium to compete with the Company's "Patna," or Bengal opium. In 1827, the Company adopted a new policy with regard to the Native States Princes to encourage them to sell their opium only through the Company in Calcutta or Bombay. The policy of "voluntary persuasion" amounted to telling the Princes they had a choice between maybe losing their throne, even their life, or earning a subsidy to compensate the loss of revenue from selling opium on the open market. It wasn't long before the British East India Company controlled the vast bulk of "Malwa" opium produced in western India.

A century earlier, the French Government had been quite willing to encourage wine and brandy smuggling into Britain, using the proceeds to help the French wine industry and simultaneously depriving Britain of needed revenue. France however, did not act as the principal smuggling agent. In 1830, when a British House of Commons Select Committee investigated Company affairs in India, Company officials argued they had to keep their opium monopoly in order to help restrict production and keep consumption down by forcing the price high enough that most people could not afford it. Far from putting upward pressure on prices and restricting consumption, the Company was actually selling four times more opium to the Chinese at a considerably lower price than it had ten years before.

When criticized for their heavy involvement in drug smuggling, Company officials countered by arguing that it was up to the Chinese to enforce their own laws. The Company's most decisive argument however, hit close to home. The value of the opium sold in China exceeded £2,000,000, about half the total amount being spent on the British Crown and the Civil Service. Depriving the Government of India of its opium revenue would mean replacing that income from other sources, say the British taxpayers. In the end, the House Committee recommended, "to abandon so important a source of revenue as the opium trade, the duty upon opium being one which falls principally on the foreign consumer," would not be desirable. Furthermore, a policy to restrict production was acceptable only if it resulted in higher profits. Stripped of its other privileges, the East India Company retained its opium monopoly. By its own decisions, the British Government, acting through the Government of India, was now directly responsible for the opium traffic.

The East India Company quietly, and quickly, abandoned its policy of restricting consumption, levied a transit tax on exports from Calcutta and Bombay, slashed prices, and instructed its agents in India to pressure the Bengal peasants to sow more poppies. Company agents were paid on commission and needed little incentive to use all manner of blackmail and extortion to bring recalcitrant peasants into line. By the 1830s, England had become a leading opium exporter. Once it started in earnest, the opium trade proved exceedingly profitable and virtually every foreign trader in Canton, including the Americans, became a supplier .

The demoralized Qing government, corrupt as it was, still depended on loyal servants, particularly in Canton. Unfortunately, Canton's bureaucracy, which was quite ready to go wherever there was a profit to be made, had no loyalty to the emperor. The accelerating corruption of the Chinese government was perhaps greatest at Canton, because more money could be made there than elsewhere in China. The problem of outright greed among the Chinese was complicated by fear. Many of China's opium dealers and distributors had close ties with secret societies that could forcefully oppose any government official who would not accept bribes.

The yaokao, Chinese opium cartels, were well-financed organizations closely tied to the Chinese underworld for sales and distribution. They moved huge amounts of cash in close cooperation with the bankers of Shanxi. Canton officials charged with suppressing the drug traffic conspired with smugglers, often gathered "free samples" of opium and passed some of the ill-gotten gain on to their superiors, presumably all the way to the Manchu Imperial Court. In 1813, the emperor discovered to his horror that members of his personal bodyguard and some of the court eunuchs had become opium addicts.

When higher authorities discovered their participation in the opium trade exposed them to blackmail or censure, they quickly learned the most expedient solution to their dilemma was to just drive the contraband trade out of their immediate jurisdiction. This led to the creation of a new "coast trade" in opium, an outgrowth of the opium trade at Lintin and a problem that became even less controllable than the opium smuggling in the Canton-Macao region. The "coast trade" operated far beyond the reach of any countermeasures the Chinese government might try to impose. China had no deep-water fleet and could not prevent opium ships from prowling its long coast. From the imperial government's perspective, this was far more alarming, not because of the opium, but because it existed outside of their control and demonstrated what British warships might do should England ever decide to use open force.

In January 1828, William Jardine, a Scotsman with wide experience in Canton, and James Matheson, another Scotsman, created a business venture that would become the dominant British trading firm in China:  Jardine, Matheson and Company. Their fleet of modern opium clippers, led by the sleek, 254-ton Red Rover, launched from Calcutta in 1829, opened up the Chinese coast to drug smugglers. The Red Rover, a "greyhound of the seas," once made the trip from Calcutta to Lintin Island in eighteen days and regularly made three round trips a year. More clipper ships followed, allowing Jardine and Matheson to be the first into the opium market every year. The drug trade spread north from Canton to Shantou, Xiamen, Zhangzhou and Huian, Fuzhou, Hangzhou and Shanghai, where the yaokao picked up the opium and moved it inland to Jiangxi and Guizhou, eastward to Fujian, and northward to Henan, Jiangxi, Anhui, and Shaanxi provinces. It was not long before Chinese from the lowest coolie to the highest mandarin were affected by the "happiness and longevity gum." By the 1830s nine out of ten people in Guangdong and Fujian provinces were addicts and opium shops were as commonplace as English pubs in London.

Under international law, the Navigation Act prohibited the operation of armed ships along the China coast without license or port clearance. Such ships were subject to seizure by the warships of any navy, including their own. China never recognized international law however, and continued to argue it was not safe to allow western foreigners to move freely within its borders. Western influences on the Chinese were disturbing and everything in the Confucian code demanded their exclusion. Despite government policy, neither the Chinese people nor the bureaucracy felt compelled to exclude the West. By law, only Canton was open to foreign trade, yet many Chinese ports were wide open. Opium was forbidden, yet there was a tremendous demand for the drug. In a practical sense, one segment of the Chinese people and the bureaucracy had already opened China to the West, not for any broad economic or political reasons, but simply because they wanted opium and the money that went with it. Opium smuggling could not have succeeded as well as it did without the cooperation of unscrupulous Chinese pirates and easily bribed officials who closed their eyes. Had the Chinese not aided and abetted the presence of western ships along their coast, the "coast trade" might never have developed at all.

Throughout the 18th and early 19th century, the imperial court in Beijing grew accustomed to receiving tribute revenue from its commercial interests in Canton. The opium trade significantly boosted the amount of this unofficial income and further strengthened China's "Canton interests." Similarly, the British interest in opium helped accelerate the pursuit of an expanded commercial role in China and gave England a further impetus to push its longstanding demand for free trade. By the 1830s, with the opium trade being pushed from two sides for different reasons, a powerful and well-organized smuggling system had firmly entrenched itself in China. Powerful changes were in the wind, but the full significance of these new changes eluded the Chinese and they made no preparations to deal with them.