An Economic History of Modern China

An Economic History of Modern China

Joseph C.H. Chai

As a country’s current development is path dependent, the rise of China and its strategic implications can only be understood in a historical context. Hence, the key to understanding contemporary China is the understanding of its past. So far there has been an absence of a comprehensive text dealing with Chinese economic history in the English language. An Economic History of Modern China fills this important gap, focusing on modern Chinese economic growth and comprehensively surveying the patterns of China’s growth experience over the past 200 years, from the Opium wars to the present day. Key events are traced back to their foundations in history to explain their impact on China’s modern economic growth.

Chapter 7: Growth of Foreign Trade and Investment

Joseph C.H. Chai

Subjects: asian studies, asian development, asian economics, development studies, asian development, development economics, economics and finance, asian economics, development economics, economic psychology


Many hypotheses have been advanced to explain the relatively slow progress of China compared to Japan during its transition to modern economic growth (MEG). One of the more popular explanations is that while foreign trade played a crucial role in early Japanese development, their role in China at the onset was modest at best, if not negative (Hou 1965; Dernberger 1975; Mah 1979; Rawski 1978). The purpose of this chapter is twofold: (1) to re-examine this hypothesis in the light of available evidence; (2) to assess the contribution of foreign capital to early Chinese MEG. FOREIGN TRADE The Growth of Foreign Trade Despite the Western countries’ attempt to force China to open to free trade, the late Qing government resisted these attempts because the country was largely self-sufficient and had a highly developed system of internal trade which assured sufficient supply of goods for traditional demand to most of China’s regions. Thus China’s foreign trade during this period grew only slowly (see Table 7.1), but its pace picked up with the steady weakening of the government. This was true especially after the Treaty of Shimonoseki, with China’s external trade volume doubling between 1891–95 and 1906–10. During the Republican period (from 1912 to 1949) the trade volume continued to surge and reached its peak in 1926–30 at almost $1400 million. However, in the 1930s China’s external trade was heavily impaired by external and internal political and economic factors, such as the Great Depression of 1929–39, the restoration...

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