A Study of Foreign Trade Finance in Modern China : Silver Price Increase in the First Half of the Nineteenth Century and Change in the Foreign Trade Mechanism

In China up to the end of 1840’s, settlement of foreign trade accounts was made in three manners: in silver; by draft; by “barter”. The three, which alternated as main methods of settlement in various phases of the historical development of China’s foreign trade, were not mutually exclusive; rather, in the way how they were related to one another, they reflected the characteristics of foreign trade finance and mechanism.(1) Settlement in silver: It is true that, along with the expanding opium trade in the second half of the 1830’s and the first half of the ’40’s, a large outflow of silver took place from China to India. However, in discussing the outflow of silver not only opium but also tea, silk and cotton goods, i. e., both the outflow and inflow of silver, should be considered fundamental factors of the whole structure of Chinese export-import relations with world markets. Settlement in silver, therefore, was caused as the result of a final settlement of accounts from a multilateral trade in the world market lead by Great Britain and the united States.(2) Settlement by draft: In the second half of the 1820’s and later, American merchants would draw a bill of exchange payable in London to settle their tea trade accounts. British merchants, in turn, would purchase it in China for their own remittance home. This method of settlement was made possible by a new trade mechanism which combined, with the British cotton industry as an intermediary, the raw material supply market in the United States and the sales market in Asia, and by having an international finance mechanism centered round the London money market to back it up.(3) “Barter”: This method cannot be regarded simply as primitive. Rather it was necessitated by both a shortage in silver and an oversupply of cotton goods at the open ports of China after the Opium War, a manifestation of the peculiar nature of trade account settlement in this period. This shortage of funds resulted in inroads of the British financial capital into China, i. e., foreign banks opening branches there.journal articl