Sources of market disintegration in eighteenth century China

by Markus Eberhardt (School of Economics, University of Nottingham)

One of the seminal questions in world and Chinese economic history is why China, in contrast to Western Europe, failed to industrialise during the nineteenth century, leading to differential development paths commonly referred to as the Great Divergence.

Social and economic historians have tried to tackle this issue by identifying potential sufficient conditions for industrialisation. One candidate condition has been the degree of national or sub-national market integration within Asia and Western Europe on the eve of industrialisation. A long-held view maintained that Western Europe was characterised by integrated markets, which had taken root because of state-supported property rights institutions. China, in contrast, despite her unified political system, was said to have failed in creating a unified national market.

This hypothesis of differential levels of market integration has been seriously challenged more recently, most notably in the work of Kenneth Pomeranz (2000), who concluded that factor and product markets in late eighteenth century Western Europe were ‘probably further from perfect competition… than those in most of China.’

Shiue and Keller (2007) carried out a formal cross-continental comparison of rice markets in Southern China during 1742-95 with wheat markets in Europe in the eighteenth and nineteenth centuries, providing the first econometric evidence for Pomeranz’s conjecture of equivalent goods market integration in both regions.

Much of the subsequent research has adopted the conclusion that ‘in the late eighteenth century… long-distance [grain] trade in China operated more efficiently than in [continental] Europe’ (von Glahn, 2016).

In related work (Bernhofen et al, 2016) we use a number of alternative empirical methods (including the cointegration analysis employed by Shiue and Keller, 2007) along with higher frequency grain price data for China and Western Europe to provide consistent evidence for a substantial decline in Chinese market integration over time: by 1800, China’s grain markets were fragmented, including in the economically most advanced regions (Jiangnan).

Our empirical implementations account for general equilibrium effects widely acknowledged to have distorted earlier investigations of market integration using price data.

In our new study, to be to be presented at the Economic History Society’s 2019 annual conference, I and my co-authors (Daniel Bernhofen, Jianan Li and Stephen Morgan) bring together arguments for such an early decline in Qing grain market integration from the rich economic and social history literatures.

We use our estimates for market integration to test empirically one prominent factor: we investigate the role played by the unprecedented population growth and internal migration during the eighteenth century and its economic, social, political and environmental implications.

In studies of early modern Europe, population growth was found to go hand in hand with market expansion and increased integration. In China, population growth and its uneven regional distribution not merely limited the surplus grain available for trade, but exerted severe pressure on an inherently instable water control system pitting farming against flood prevention and the waterway transportation of goods, creating increasingly insurmountable challenges for water engineering.

In combination with rigid fiscal rules, population growth constrained the ability of the Qing state to govern this vast empire effectively. Local officials reacted to rising population pressure with ‘grain protectionism’, leading to temporary political borders, which further hampered the functioning of the market.

The narrative we develop is not that of a standard ‘Malthusian trap’, where an acceleration in pre-modern agricultural growth is followed by population growth that dilutes per capita resources and thus keeps the economy in a ‘low level equilibrium trap’. Instead, we describe an escalating ‘span of control’ problem, increasing the pressure on a small bureaucracy in the periphery as well as the core of the empire, caused by a rigid and underfunded state apparatus.

Figure: Population density growth and internal migration

Notes

We plot the annualised population density growth rates (in percent) between 1776 and 1820 for 211 prefectures. Black solid lines indicate provincial borders. The dashed line marks the early eighteenth century ‘frontier’ between developed and developing areas of Qing China (Myers and Wang, 2002). Arrows indicate major internal migration flows (stylised representation) during the eighteenth century. The two Northern migration strands actually extend beyond Qing China proper into Xinjiang and Manchuria.

Sources

Population density data are taken from Cao (2000), information on eighteenth century migration flows from Eliott (2009: 147), Entenmann (1980: 41f), Ho (1959: 139ff), Lee and Feng (1999: 118), Mann-Jones and Kuhn (1978: 109f, 132), Myers and Wang (2002: Map 9), shapefiles from CHGIS version 6 (2016).