Opium Wars - British Trade and The Canton System

British Trade and The Canton System

British ships began to appear infrequently around the coasts of China from 1635; without establishing formal relations through the tributary system, British merchants were allowed to trade at the ports of Zhoushan and Xiamen in addition to Guangzhou (Canton). Trade further benefited after the Qing relaxed maritime trade restrictions in the 1680s, after Taiwan came under Qing control in 1683, and even rhetoric regarding the "tributary status" of Europeans was muted. Guangzhou (Canton) was the port of preference for most foreign trade; ships did try to call at other ports but they did not match the benefits of Guangzhou's geographic position at the mouth of the Pearl river trade network and Guangzhou's long experience in balancing the demands of Beijing with those of Chinese and foreign merchants. From 1700–1842, Guangzhou came to dominate maritime trade with China, and this period became known as the "Canton System".

Official British trade was conducted through the auspices of the British East India Company, which held a royal charter for trade with the Far East. The EIC gradually came to dominate Sino-European trade from its position in India.

Low Chinese demand for European goods, and high European demand for Chinese goods, including tea, silk, and porcelain, forced European merchants to purchase these goods with silver, the only commodity the Chinese would accept. In modern economic terms the Chinese were demanding hard currency or specie (gold or silver coinage) as the medium of exchange for the international trade in their goods. From the mid-17th century around 28 million kilograms of silver was received by China, principally from European powers, in exchange for Chinese goods.

Britain's problem was further complicated by the fact that it had been using the gold standard from the mid-18th century and therefore had to purchase silver from other European countries, incurring an additional transaction cost.

In the 18th century, despite ardent protest from the Qing government, British traders began importing opium from India. The introduction of opium into China was caused by Britain's need to send something back to China in return for their highly consumed Chinese tea. Britain first tried exporting European clothes, but the Chinese preferred their own silk. With India and its poppy fields under Britain's command, the logical option to fix the imbalance of trade was to start trading opium.

Because of its strong mass appeal and addictive nature, opium was an effective solution to the British trade problem. An instant consumer market for the drug was secured by the addiction of thousands of Chinese, and the flow of silver was reversed. Recognizing the growing number of addicts, the Yongzheng Emperor prohibited the sale and smoking of opium in 1729, and only allowed a small amount of opium imports for medicinal purposes.