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History: From the "Middle Kingdom" to the "Century of Humiliation"

The official narrative of contemporary Chinese economic development has a distinctively historical undertone, evoking China's newly achieved prosperity and its growing economic weight in the world as a return to the country's historical grandeur. Indeed, a rich and strong China has been the dream cherished by generations of Chinese. In this chapter we will take a whistlestop tour of China's development from the long durée of the so-called "Middle Kingdom" (zhongguo) to the "century of humiliation" and into the communist era. This historical background aims to help us understand the ambitions and the strategies of economic development in contemporary China.

Section I reflects on the relative decline of Chinese economy at a time of European ascendance with the Industrial Revolution of the eighteenth and nineteenth centuries. It presents contending perspectives on the so-called "great divergence" between China and Europe in terms of their modern economic development. Section II takes a closer look at the crises faced by China and its responses from the end of the Qing Dynasty (1644-1912) to the Communist era. It highlights the Self-Strengthening Movement led by Qing officials in the late nineteenth century and the modernization experiments under the Chinese Communist Party (CCP) in the mid-twentieth century and explores why, after losing its lead in the world economy in the eighteenth century, China failed to catch up with the front runners in the ensuing two centuries.

"The Great Divergence"

The Venetian merchant and traveler, Marco Polo, visited China in the thirteenth century during the Yuan Dynasty (1271-1368). This was a time of division and war in Europe, where nations, city-states, and the Catholic Church competed against each other fiercely and continuously. In contrast, China enjoyed relative peace after the conquest by the Mongols. Polo stayed in China for seventeen years and traveled extensively to different parts of the country. After returning to Italy, which was in the midst of a war between Venice and Genoa, he recorded what he had seen and experienced. His book, A Description of the World or The Travels of Marco Polo, described a China that was far ahead of Europe in its economy, technology, urban development, and bureaucratic organization (Polo 1903). For instance, he reported the wide use of coal ("black stone existing in beds in the mountains"), which was a better and less costly kind of fuel than wood, large-scale iron and salt production, exquisite quality of porcelain and silk, as well as the circulation of paper money, all of which were eye-opening for the Europeans.

Polo was particularly vivid in his description of the wealth and splendor he witnessed in China. Speaking of the palace of Kublai Khan, the Mongol emperor of China who made Beijing his capital city, Polo marveled, "This is the greatest palace that ever was . The building is altogether so vast, so rich, and so beautiful, that no man on earth could design anything superior to it." His description of the city of Beijing was just as euphoric, stating that it "has such a multitude of houses, and such a vast population inside the walls and outside, that it seems quite past all possibility . To the city also are brought articles of greater cost and rarity, and in greater abundance of all kinds, than to any other city in the world."

He described the "many roads and highways leading from the capital to a variety of provinces," where "the traveling messengers of the emperor would find at every 25 miles of the journey a station called a 'Horse Post-House.' At each of those stations used by the messengers, there is a large and handsome building for them to stay at, in which they find all the rooms furnished with fine beds and all other necessary articles in silk, and where they are provided with everything they can want." He concluded that this communication system "was done on the greatest scale of magnificence that ever was seen."

Polo was sent by the Great Khan to inspect the amount of his customs and revenue in various areas of the country. He was deeply impressed by the scale and wealth of Chinese cities. He noted that "the great and noble city" of Suzhou contained "merchants of great wealth and an incalculable number of people . 6,000 bridges, all of stone, and so lofty that two ships together could pass underneath them." He praised the even grander city of Hangzhou for its size, population, lively markets, guilds of craftsmen, boats, and barges, and the "finest and largest baths in the world .," proclaiming "the city is beyond dispute the finest and noblest in the world."

Indeed, for much of its history, traditional China was the world's largest and most advanced economy. Economic historians' meticulous research shows that from the tenth to the early fifteenth century Chinese per capita income was higher than that of Europe and that, as of 1830, the Chinese economy was still the biggest in the world, accounting for almost 33 percent of the world's GDP, while Europe made up 26.6 percent (Maddison 2007). In the later eleventh century, by using coal and coke in blast furnaces, the Chinese produced as much pig iron as the British did 700 years later. In the thirteenth century, power-driven spinning machines appeared in China, about 500 years before spinning mules appeared in England (Landes 2006). In the early fifteenth century, Ming Dynasty's Admiral Zheng He took his armada sailing through Southeast Asia to East Africa. Chinese navigation technology then was superior to anything the Europeans would have at the time when Christopher Columbus and Vasco da Gama set off on their voyages many decades later (Wakeman 1983). In his famous 1776 treatise, Wealth of Nations, Adam Smith wrote that China was "a much richer country than any part of Europe."

However, underneath the appearance of continued Chinese preeminence, important changes began to take place. From the fifteenth century to the eighteenth century, Western Europe gradually overtook China in its pace of economic growth. A recent study, relying on historical data on GDP per capita, points more precisely to the period of seventeenth to the early eighteenth century as the start of the divergent trajectories of development in China and Europe (Broadberry et al. 2018). In time, this divergence would lead to disastrous encounters between China and European powers.

By the late eighteenth century, the Industrial Revolution had made Britain an enthusiastic and competitive international trader, seeking overseas markets for its industrial goods. Its economic expansion led it to China, the land of silk, tea, and fine porcelain - all luxury items highly desired by European consumers. However, British merchants had one big problem: while there was a lot they wanted to buy from China, the Chinese had little interest in buying anything they had to offer. They resorted to selling opium to China to pay for their purchase of Chinese goods. As the scale of the opium trade expanded, its harmful effect on the Chinese population alarmed the Qing government. It introduced an opium ban. In 1839, the court dispatched Lin Zexu, an passionate and determined patriotic official, to the southern city of Guangzhou to crack down on the opium trade. He arrested opium dealers, seized and destroyed large quantities of opium, and sought to blockade further opium smuggling. Britain retaliated swiftly, sending its naval forces to China and brought the Qing Empire to its knees. Following the first Opium War (1839-1842), China lost many more wars to Britain and other foreign powers, paid heavy reparations, ceded massive territories, opened its market to foreign trade, and granted extraterritoriality to foreign nationals. While the country remained formally independent, its sovereignty was in shambles.

Why did China fall so far behind Europe in its economic and technological development, despite its significant lead in previous centuries? Moreover, it was not just that its economic development was stagnant compared to that of Europe during the Industrial Revolution, but it regressed from its own past. For example, the Chinese invented the hemp-spinning machine in the fourteenth century, but it was never adapted for manufacturing cotton. Although China invented the technology for using coal and coke, it fell into disuse, reversing the progress achieved previously by the iron industry. When confronting the European invaders in the nineteenth century, the Chinese had forgotten how to use the cannons they had developed in the thirteenth century (Landes 2006).

Scholars have long puzzled over the great divergence between China and Europe in the modern era. Much of the discussion focuses on the question of why China did not experience the development of modern capitalism and the Industrial Revolution that transformed the economy of Europe. This may be a natural question to ponder, given the subsequent competition and conflict between Europe and China. However, as the historian Nathan Sivin points out, it is odd to ask "why something didn't happen in history. It is analogous to the question of why your name did not appear on page 3 of today's newspaper" (Sivin 1985, p. 6). A better way to think of...