The so-called Canton System (Ch. yikou tongshang 一口通商 "single-port foreign trade"), restricting foreign trade to the port of Guangzhou 廣州 (Canton), Guangdong, and to mediation by state-commissioned merchant houses known as the cohong (from gonghang 公行, but in Chinese called hangshang 行商), was introduced around 1760 and ended with the First Opium War (1839-1842). It was an expression of a threefold hierarchy, namely foreign traders (yanghang 洋行) being subordinated to the monopolist cohong guilds, and the latter being subject to the imperial superintendent of maritime customs (Yue haiguan bu 粵海關部, by foreigners known as the Hoppo, from hubu 戶部, actually "governmental revenue section").
Limited trade with foreigners was common during the Ming 明 (1368-1644) and early Qing 清 (1644-1911) periods, as can be see in the case of Kyakhta at the Mongolian-Russian border, where Russian traders were quarantined and expected to deliver "tributes". In this way, international trade was "subordinated to political raisons d’état" (Wakeman 1978: 163).
The construction of the Canton System also profited the Imperial Household (neiwufu 内務府), which reaped the revenues from the trade via the cohong. The annual income of up to 855,000 silver taels (Wakeman 1978: 163, 180) went into the pockets of the imperial clan, and not into the treasury of the Ministry of Revenue (hubu 戶部). This was the reason why the Qing court was interested in upholding the Canton System.factories xxx
The sole Western trader at Canton was the British East India Company (EIC) which had obtained a monopoly over the China trade in 1600. The British purchased tea and textiles worth about 7 million silver dollars annually (Wakeman 1978: 164), but imported to China cloth valuing just 3.5 million. The rest was directly paid with silver currency, the so-called Spanish Silver Dollar. From 1805 on, the EIC commissioned private merchants, the so-called "country traders", to deliver goods to Canton. Their portfolio of merchandise was somewhat larger than that of the EIC and included not just Indian cottons and goods from South East Asia, but also mechanical instruments (like music boxes or mechanical toys, Wakeman 1978: 165) from Europe which were ardently sought by the Chinese. The silver earned by the private merchants was to stay in Canton, and therefore, the EIC paid them out in bills of exchange cashable in Calcutta or London.
The tea which the EIC purchased in Canton was brought to England, where not just the Company made huge profits, but also the British government through the 10 per cent-taxation of the commodity, making out £3.3 million of taxes p.a. (Wakeman 1978: 166, 173).
The EIC, indebted by the cost of the military conquest of Bengal and other parts of the Indian subcontinent, created in 1787 the agency system to arrange for balancing the funds in the triangular trade between Calcutta, Canton, and London.country traders from Calcutta to Canton cotton and opium, back from Canton tea by EIC, but by country traders (“the private English”) just sugar or tutenague. The possession of India and her products was crucial to counter-finance the ravenous demand of Great Britain for tea.
The Canton System was a hotbed of corruption, mainly for the Customs Superintendents who had an appointment term of three years and used this time to line their pockets by extorting money from the cohong merchants. To protect themselves, the cohong set up in 1775 a common fund known as the Consoo Fund (from Ch. gongsuo 公所 "guild hall"). It levied 3 per cent on foreign imports (Wakeman 1978: 165). In the late 18th century, with growing expenditure to finance wars, bandit suppression and public work like dykes along the Yellow River, the imperial government relied increasingly on contributions (juanna 捐納) to be delivered by individual state officials, but also by large merchant associations like the salt monopolists or the cohong guild. The latter had to contribute nearly 5 million silver taels p.a. to the government in the years around 1810 (Wakeman 1978: 165).
The financial instability of the cohong guild endangered the trade with the EIC, and therefore the latter began to advance buyer credits to the cohong. The sums ran up to 50 per cent for tea and even 90 per cent of silk contracts (Wakeman 1978: 166). This kind of mutual dependence welded together to a kind of "Anglo-Chinese guild" (Wakeman 1978: 169).
In 1785, the first American ship arrived in Canton, an event which brought to the stage a new competitor to the Anglo-Chinese trade alliance. In the early decades of the 19th century, the US-Chinese business introduced new funds into the Canton trade, with 2-3 million Mexican Silver Dollars annually around 1830 (Wakeman 1978: 169). Mehr Geld heißt geringere Zinsen für die Cohong.
The landscape of the Canton trade had changed, and expanded steadily. The consequence was that both the private traders of the British (and the Americans) and those on the Chinese side tried to shackle off the fetters of the Canton System. The reaction of the Chinese Customs Intendent was to force the cohong guild to offer security for all foreign merchants and outside brokers.
In 1813, Parliament decided to abolish the monopoly of the EIC over India, but to retain the China monopoly until 1833. Yet the private Calcutta houses were shaken by the world trade depression and credit crisis of the late 1820s. Moreover, the Chinese market for foreign goods was quite unstable, and to make things worse, commodity from Singapore – a British colony since 1819 - began to enter the Canton market. British private traders therefore shifted to another import commodity than cotton, namely opium.
In 1833, when the EIC lost its monopoly, the Canton System remained in practice, even if global trade had substantially increased in the past fifty years. The industrial revolution had contributed to a huge output in cotton textiles for which new markets were to be opened, for instance, the Chinese one with its 400 million potential consumers (Wakeman 1978: 173). George Macartney (1737-1806), visiting China in 1793, and William Pitt Amherst (1773-1857), repeating the British request for open trade in 1816, had failed to negotiate access to the Chinese market. Some voices therefore began to opt for forcible opening of the China market.
Another problem of the end of the EIC monopoly was responsibility for the foreign merchants. The EIC had stood as a single actor for British traders, but with the advent of the private US traders and the emergence of the private English, there was a multitude of actors the Chinese authorities had to deal with. For this reason, a British Superintendent (Ch. zhu Hua shangwu zongjian 駐華商務總監) was appointed in 1834, namely William John Napier (Ch. Lü Laobei 律勞卑, 1786-1834).
Napier had been ordered by Foreign Secretary Lord Palmerston (1784-1865) to contact by letter the "Viceroy", i.e. the Governor-General (zongdu 總督) of Liang-Guang 兩廣 (Guangdong and Guangxi). This was forbidden according to the Chinese tributary system. The "Viceroy" Lu Kun 盧坤 (1772-1835, in office 1832-1835) therefore ordered Napier in July 1834 to leave Canton and return to Macao, where foreign traders usually resided, but Napier refused. The Chinese thereupon announced halt of the Canton trade. The British representative decided to make use of military means, and ordered two British warships up the Pearl River. Yet Lu Kun blockaded the entrance of the Bocca Tigris. After nearly three weaks, the private English surrendered, and Napier could not but return to Macao, where he eventually died from malaria. This episode is known as the Napier Affair (Lü Laobei shijian 律劳卑事件). The Chinese side had learnt that it was apparently easy to domesticate the "barbarians".
Napier's successor, John Francis Davis (Ch. Dai Weisi 戴維斯, 1795-1890), promised to adopt a less adventurous policy, much to the chagrin of the country traders which would like to have opened China forcibly, if needed. James Matheson (Ch. Zhanmushi Madichen 詹姆士•馬地臣, 1796-1878) lobbied in Great Britain for the cause of the private English, and found a ready ear in Lord Palmerston. The solution was to press the Chinese a bit harder to provoke a casus belli (Wakeman 1978: 176-177).
In June 1836, Captain Charles Elliot (Ch. Chali Yilü 查理•義律, 1801-1875) was made plenipotentiary as Superintendent of the China Trade. Personally, Elliot detested the opium trade, but had an official function. As former Superintendant of Macao, he was more familiar with Chinese procedures, and submitted a petition to "Viceroy" Deng Tingzhen 鄧廷楨 (1776–1846,in office 1835-1840). The Governor-General recognized Elliot as the Superintendant and allowed him to proceed to Canton, but soon felt to have allowed the "barbarians" to raise to equal standing of representatives of the "Celestial Empire". Elliot thereupon decided to menace the Chinese by dispatching two warships, but called them off after a Chinese officer had apologized for a minor incident.
After having tried to “open China” by using formal issues as a pretext, the opium trade offered a new chance to do so.