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Economic Dualism: The Case of China 1840–1937*

Published online by Cambridge University Press:  03 February 2011

Chi-Ming Hou
Chi-Ming Hou
Affiliation:
Colgate University
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Extract

A persistent argument in condemning foreign economic intrusion in China (1840–1937) is that the “traditional” or the “indigenous” sector of the economy was “hampered,” “disrupted,” or even “ruined.” It is maintained that the handicrafts, small mines, native banks, junks, and coolie carriers were all helplessly depressed because of competition from their counterparts in the modern sector of the economy, which was an outgrowth of external trade and foreign investment in China. Some have argued that the supposed decline in the traditional sector was a net loss to China, since the limited development in the modern sector was not large enough to offset losses in the traditional sector, or that gains in the modern sector were primarily reaped by countries which traded with or invested in China. Others have taken a more moderate view: that the net effect of foreign economic penetration in China cannot be ascertained, because gains and losses in the two sectors cannot be compared quantitatively. But in either case there is the assertion that there was a decline in the traditional sector.

Type
Articles
Information
The Journal of Economic History , Volume 23 , Issue 3 , September 1963 , pp. 277 - 297
Copyright
Copyright © The Economic History Association 1963

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References

1 This is not to say that foreign enterprises alone were responsible for the growth of the modern sector. An interesting fact was that the Chinese share in the modern sector of the Chinese economy was remarkably stable over time, indicating that the Chinese-owned modern enterprises were, in the long run, able to grow as fast as the foreign enterprises in China. On this point, see my “External Trade, Foreign Investment, and Domestic Development: The Chinese Experience, 1840–1937,” Economic Development and Cultural Change, X (Oct. 1961), 21–41Google Scholar; also my “The Oppression Argument on Foreign Investment in China, 1895–1937,” The Journal of Asian Studies, XX (August 1961), 435–48Google Scholar.

2 For a presentation of the advocates of these views, see Tze-yi, P'eng, ed., Source Materials on the Modern History of Chinese Handicrafts (1840–1949) [in Chinese] (4 vols.; Peking: San-lien Book Store, 1957)Google Scholar, especially Vols. ii and iii ; see also Hsien-ting, Fang (H. D. Fong), Rural Industries in China (Tientsin: Chihli Press, 1933)Google Scholar. It may also be added here that Sun Yat-sen, Chiang Kai-shek, and Mao Tse-tung have all emphasized the destructive effect of foreign economic penetration on the traditional sector of the Chinese economy.

3 While this definition is generally followed in this paper, some exceptions are to be made. For instance, in handicrafts we will include, for reasons of availablility of data, small scale workshops producing commodities which had never been produced in “traditional” China, such as electrical instruments, cigarettes, etc. (see Table 2). But these exceptions were not significant enough to alter our conclusions. Furthermore, these workshops, though producing new commodities, were basically traditional in operation and organization.

4 The various modernization measures will be briefly described below. For the increase of the extent to which agricultural commodities were commercialized, see Buck, J. L., Land Utilization in China (Shanghai: The Commercial Press, 1937), p. 357Google Scholar.

5 A modern mine is one which uses machines of a Western type.

6 See Chung-p'ing, Yen, ed., Selected Statistics on Modern Economic History of China [in Chinese] (Peking: Science Publishing House, 1955), p. 104Google Scholar.

7 General Statement on the Mining Industry, Special Report of Geological Survey of China, various issues.

8 Yang Yin-p'u, Private Finance in China [in Chinese], p. 68, cited in Ting, Leonard G., “Chinese Modern Banks and the Finance of Government and Industry,” Nankai Social and Economic Quarterly, Vol. VIII, No. 3 (Oct. 1935)Google Scholar.

9 Yen Chung-p'ing, ed., Selected Statistics, p. 72.

10 Ou Pao-san, “Revision of ‘National Income of China, 1933’,” pp. 93, 136, 149.

11 The shares of various industries in their contribution to net national product, according to Ou's estimates, are as follows: agricultural, 61.5 per cent; mining, 1.1 per cent; manufacturing, 9.2 per cent; construction, 1.1 per cent; transportation and communication, 4.5 per cent; commerce, 12.4 per cent; banking and finance, 1.0 per cent; housing, 4.6 per cent; professional services, 0.8 per cent; domestic services, 0.7 per cent; public administration, 31 per cent; see ibid., p. 93.

12 See Rosovsky, Henry and Ohkawa, Kazushi, “The Indigenous Components in the Modern Japanese Economy,” in Economic Development and Cultural Change, IX (April 1961), 476–501CrossRefGoogle Scholar.

13 The computation is based on the quantity index of exports of China as published by the Nankai Institute of Economics. (See Nankai Social and Economic Quarterly, X, No. 2 [July 1937], pp. 346–47.) The equation of the trend of exports is Y = 30.59 + (1.024)x with the origin at 1866.

14 Yen Chung-p'ing, ed., Selected Statistics, p. 70.

15 The price index used is the index number of wholesale prices calculated by Franklin L. Ho, as given in Yang Twan-liu, Hou Hou-pei and others, Statistics of China's Foreign Trade During the Last Sixty-five Years (Nanking: National Research Institute of Social Sciences, Academia Sinica, 1931), p. 3. The base year of the index is 1913. The 1873 export figure is deflated by the 1874 index number and the 1930 export figure by the 1928 index number.

16 The export figures are supplied to me by Professor Theodore Herman of Colgate University who has also generously shared with me some of his expert knowledge on Chinese handicrafts. The index number used for deflation is Professor Ho's, as cited above. Herman defines a handicraft article as one in which most of the value and/or sales appeal of the end-product results from the effort, skill, or artistry of one person or several people working closely together and using very little mechanical power. See his “An Analysis of China's Export Handicraft Industries to 1930,” a doctoral thesis at University of Washington, 1954.

17 P'eng Tze-yi, ed., Source Materials, Vol. III, Appendix 3. Many items such as tea and silk which are excluded by Herman's definition are included in this study.

18 Calculations are based on figures given by Fang Hsien-ting, Rural Industries in China, p. 14. The trend line is fitted by free-hand method.

19 Yen Chung-p'ing, Selected Statistics, p. 16.

20 Ibid.

21 Here it is implied that in the long run the elasticity of aggregate supply was greater than zero. That is, an increase of production in the export sector and in the modern sector does not require a declining availability of resources for development of the traditional sector.

22 Yen Chung-p'ing, Selected Statistics, p. 103.

23 Based on data given in ibid., pp. 134–35.

24 The value of the import of cotton goods is deflated by Professor Ho's index cited above. For the import data of cotton yarn and cotton goods, see Yang, Hou and others, Statistics of China's Foreign Trade, pp. 20, 46.

25 For the Kao-yang area, see Chih, Wu, A Study on Rural Cloth Industry [in Chinese] (Shanghai: 1936)Google Scholar. For Ting-hsien, see Shih-wen, Chang, A Survey on Rural Industries in Ting-Hsien [in Chinese] (Ting-hsien: Association for the Promotion of Mass Education in China, 1936)Google Scholar.

26 The industry in Kao-yang area declined sharply from 1929 to 1933, but it cannot be determined whether it was a temporary decline or a new trend. No data are available for later development.

27 For Nan-tung area, see Chung-p'ing, Yen, A Draft History of Chinese Cotton Spinning and Weaving [in Chinese] (Peking: Science Publishing House, 1955), pp. 260–61Google Scholar.

28 Odell has observed: “The cloth that is woven on these [hand] looms is extremely popular among the natives, and although that sold in the market is often as expensive as similar foreign goods, it must be remembered that a large proportion of it is made in the homes of the people for their own use; and as long as they can buy raw cotton and spin it into yarn or buy foreign yarn at low prices for weaving into cloth in seasons when they are not occupied in the fields, they will likely find this a more economical method of providing themselves with clothing than to buy foreign goods.” See Odell, Ralph M., Cotton Goods in China (Washington: U.S. Dept. of Commerce, 1916), p. 193Google Scholar.

29 There is also evidence to show that new cloth-weaving workshops were constantly being established in various hand-weaving centers after the turn of the century. But such evidence cannot be considered conclusive, though suggestive, of growth of the industry, for failures must also have occurred from time to time. For the newly established workshops, see Peng Tze-yi, ed., Source Materials, Vol. II, chs. xii and xv.

30 Yen Chung-p'ing, A Draft History, p. 334.

31 According to Buck, the cultivated area of cotton constituted 11 per cent, 14 per cent, 18 per cent and 20 per cent of total crop area in China for 1904–1909, 1914–1919, 1924–1929 and 1929–1933 respectively. See John Lossing Buck, Land Utilization, p. 217. Total crop area is estimated to have been the same during the period. See Yen Chung-p'ing, ed., Selected Statistics, p. 357. The reasons given by Buck for the increase of cotton acreage were high price and high yield.

32 It may be noted that the highest estimate of cotton production for 1913 in Table 4 is quite close to the figure of 1,127 million pounds which, according to one estimate, is the cotton production figure for 19,18–1919. See Hsien-ting, Fang, The Cotton Textile Industry in China [in Chinese] (Shanghai: The Commercial Press, 1934), p. 26Google Scholar.

33 For the various estimates on cotton consumption for wadding purposes in the 1930's, see Yen Chung-p'ing, A Draft History, p. 308. Yen's own estimate, which appears on the high side, was 533 million pounds per year for 1932–1936.

34 American cotton seeds were introduced to China in the 1860's, perhaps first by foreign merchants and then by the Imperial government. In the 1890's, American cotton seeds were even forced upon some Chinese cotton growers by Chang Chih-tung. An Imperial edict was issued to improve cotton seeds and plantation methods in 1908. Further efforts were made from time to time by both textile firms and the government in later years. See Yen Chungp'ing, A Draft History, pp. 324–30.

35 Eckaus, K. S., “The Factor Proportions Problem in Underdeveloped Areas,” American Economic Review, XLV (Sept. 1955), 539–65Google Scholar; Hirschman, A. O., “Investment Policies and ‘Dualism’ in Underdeveloped Countries,” American Economic Review, XLVII (Sept. 1957), 550–70Google Scholar.

36 For some of the scattered wage data available, see P'eng Tze-yi, ed., Source Materials, Vol. II, ch. xviii and Vol. III, ch. xxi.

37 Yen Chung-p'ing, A Draft History, p. 255.

38 P'eng Tze-yi, ed., Source Materials, II, 691.

39 Ibid., II, 392, 403, 691; III, 72.

40 Myrdal attempts to analyze the relationship between the developed and the underdeveloped regions of a country. Since the modern sector of the Chinese economy was developed primarily in the coastal and riverine regions, Myrdal's analysis seems to be applicable. For Myrdal's analysis, see Myrdal, Gunner, Rich Lands and Poor: The Road to World Prosperity (New York: Harper and Bros., 1957)Google Scholar. A. O. Hirschman, in his article “Investment Policies and ‘Dualism’ in Underdeveloped Countries,” addresses himself to the same problem. His trickling down effects are similar to Myrdal's spread effects and his polarization effects similar to Myrdal's backwash effects. But his emphasis and conclusions are not quite the same as those of Myrdal's.

41 The population of 33 cities increased from 7 million in 1904 to 13 million in 1931, or at an annual rate of 2.3 per cent. The increase cannot be entirely accounted for by natural increase in these cities. For population data, see Shanghai: The Maritime Customs, Reports and Returns of Trade, and Foreign Trade of China, various years.

42 See, for instance, Lewis, W. A., “Unlimited Labor: Further Notes,” in The Manchester School of Economics and Social Studies, XXVI, No. 1 (Jan. 1958), 22–23Google Scholar; Johnson, H. G., “Economic Expansion and International Trade” in same journal, Vol. XXIII, No. 2 (May 1955)Google Scholar.

43 For a discussion of this possibility, see Hirschman, Albert O., The Strategy of Economic Development (New Haven, 1958), p. 189Google Scholar.

44 The terms of trade referred to are the commodity terms of trade. Computations are based on data given by John Lossing Buck, Land Utilization, p. 319.

45 For some of these measures, see my article “External Trade, Foreign Investment, and Domestic Development: The Chinese Experience, 1840–1937,” in Economic Development and Cultural Change, X (Oct. 1961)Google Scholar.

46 See Wen-chih, Li, ed., Source Materials on the Modern History of Chinese Agriculture [in Chinese] (Peking: 1957), Vol. IGoogle Scholar, ch. viii; Vol. II, chs. ii, iii, iv. Also P'eng Tze-yi, ed., Source Materials, Vol. II, ch. xvii.

47 John Lossing Buck, Land Utilization, pp. 316, 330.

48 This is not to say that every handicraft survived modern competition; for instance, the wide use of kerosene certainly displaced much of the vegetable oil for lighting, and modern needles displaced traditional ones. In localities near the treaty ports, many handicrafts became victims of their modern counterparts. But there is also evidence to suggest that when one handicraft became threatened, people began to turn to other fields. The shifts from cotton spinning to weaving in Kwangtung, and from textiles to straw braid manufacture in Shantung are cases in point. A general decline in the traditional sector, unless offset by the modern sector, would involve rising rural unemployment or “disguised unemployment.” There are no data to indicate whether the trend of such unemployment was rising, if this type of unemployment ever existed at all.