An Empire on the Edge

by Nick Bunker

  After that the Europeans found themselves ever more tightly confined to Whampoa Roads or to their compounds in Canton. Here, in the province of Guangzhou, the emperor had a viceroy, Li Shiyao, who drew up a set of rules for the Westerners, called the “five limitations on barbarian merchants.” Some could be bent in exchange for bribes, but the basic principles were never compromised. The rules allowed the foreign merchants to buy tea, porcelain, silk, and a few other textiles, but nothing else. Imports of weapons and opium were banned. To prevent the foreigners from gathering intelligence about his country, the viceroy’s edict kept their contact with his people to a minimum, even barring Europeans from hiring Cantonese servants.7

  From the Chinese point of view the Europeans were merely temporary guests, welcome only for the sake of their money. On arrival at the Bocca the ships paid not only a toll, the first of many, but also charges for mooring, loading, and unloading and for pilots and translators, and there were “presents” to be given to the mandarins. The largest levies were the customs duties on exported tea. To ensure that they were never evaded, Li Shiyao insisted that the Europeans deal with a small, exclusive group of nine merchants, known as the Hongs, who collected the taxes on the emperor’s behalf. The richest and most adventurous was a man the British called Puankhequa.

  Since corruption was rife, not all the tea duties found their way to Beijing. Even so, each year a million ounces of silver traveled up by porter and pack animal to reach the Forbidden City. This represented only a small fraction of the emperor’s income, most of which came from a land tax on his peasants, but an extra tranche of silver always had its uses. The export trade in tea helped finance China’s military machine; it oiled the wheels of commerce with hard currency; and it brought a new source of prosperity to the countryside. As Qianlong knew full well, his empire rested on the backs of Chinese farmers and the crops they grew. In places where rice and grain could never flourish, they needed a substitute, and tea served this purpose to perfection.8

  In the southeastern corner of his empire, facing the island of Taiwan, the emperor had a remote, secluded province called Fukien, small by Chinese standards but not by those of Europe. Although its rugged shores were beaten by typhoons, and although hills and forests filled the land and the soil was thin and poor, about twelve million people lived there, one million more than the population of the British Isles.* Fukien was never rich: but deep in its northern interior, where the mountains rose as high as seven thousand feet, the warm, wet climate was ideal for growing tea. Known as Wu Yi, the region produced the leaves the British called Bohea. In the sixteenth century the farmers adopted a tactic called panshan—“challenging the peaks”—and began to fill the misty slopes with terraces for tea and indigo. Much of the land belonged to monasteries, Taoist and Buddhist, that smiled on this new departure, which had the blessing of successive emperors as well.

  But despite its ideal climate and geography, it took many decades for Wu Yi to begin to fulfill its potential. New tea plants took four years to reach maturity, with dikes and drains needed to protect the soil from erosion by summer rains, and at harvest time the farmers required an army of helpers. Once the raw leaves were picked, they had to be processed, first by wilting in the sun and then by a stir fry and careful drying before the tea was fit to drink. And then, to reach the outside world, it had to travel by porter and river barge to Canton, a journey of seven weeks. To finance all of this, the planters needed capital and credit, but only in the 1730s did it begin to arrive from the West in the quantities required, coming mainly from the British, whose prosperous textile trade with India gave them the wherewithal to invest in China. These were the years when a mass market for tea developed in Great Britain, and the East India Company stood ready to grasp the rich opportunity that Fukien made available.

  Factories occupied by foreign merchants at Canton, with the English and the Dutch on the right, painted by William Daniell in 1806 but still much as they were thirty years earlier. Yale Center for British Art

  Gradually, the company assembled a new trading system that allowed their business to grow as never before. In its factory at Canton the East India Company kept twelve agents, the supercargoes, whose job it was to haggle with the Hongs. Each February, the supercargoes would bid for the next season’s tea and pay a cash advance in silver amounting to about two-thirds of the price they had agreed. The remainder fell due in the autumn, when ships like Captain Thomson’s arrived from the West. Meanwhile, the Hongs took the cash advance and lent it onward into China along a chain of middlemen and shippers until eventually it reached the farmers on the mountains.

  With so much capital at hand they could build more terraces, plant more tea, and recruit the seasonal labor they needed. By 1771, nearly three-quarters of the tea the British drank came from Wu Yi or thereabouts, and with each passing year the price they paid for it in China had fallen as the output of the region soared. But simple though it sounds and successful though it was, the system contained a fatal weakness. With tea so cheap and plentiful, the British supercargoes always tried to buy every ounce they could afford. At some stage the British would go too far and ramp the business up to a level that was unsustainable. Because of the way the East India Company chose to reward its employees, no one wished to call a halt to an enterprise so lucrative.9

  Instead of a salary, a British supercargo at Canton earned a commission, averaging 4 percent of the value of the goods they bought and sold. Taking so high a cut, he could make £4,000 from a single season in the factory, almost enough to buy a gentleman’s estate in the heart of England. If he were brave and fit enough to remain ten years or more, he might come home very rich indeed, with a chance of a seat on the company’s board or in Parliament. For reasons such as these the job of supercargo was sought after avidly. Only members of established merchant families in London could hope to be appointed to a post so promising. In choosing candidates, the directors gave first preference to their own relations. The best job of all was that of chief supercargo at Canton, because he took a cut of 10 percent. In 1771 the man in question was, of course, the son of a veteran member of the board.10

  Paid by commission as they were, the East India Company supercargoes always urged London to send as many ships to China as it could find, and here again the system contained a flaw. Rather than own its ships outright, the company hired them from contractors for a handsome fee per ton. As time went by, the shipowners bought stock, joined the East India Company’s board, and formed a powerful lobby, the so-called shipping interest, who established a monopoly on the supply of vessels and the appointment of commanders. In order to inflate their own profits, the shipowners in their turn twisted the arms of their fellow directors to commission an ever expanding fleet. Their kinsmen stood to benefit as well since the shipowners gave their sons and nephews the best careers available at sea. Indeed, this was how William Thomson came to command the Calcutta. His father had been an East India captain before him, his uncle led the syndicate of investors who owned the ship, and Thomson’s brother sailed with him to China as first mate. Once there, the brothers dealt on their account in Hyson, the costliest brand of tea, four times more expensive than Bohea, bringing home more than a hundred chests for private sale in London. And if he ever tired of his hazardous life at sea, William Thomson could retire, selling his rank to the highest bidder for a going rate in the 1770s of £10,000.11

  With so much money to be made in so many different ways, whether they were British or Chinese, every player in the China trade wished to raise the stakes and see the business grow more swiftly. The same was true of the British East India Company’s principal competitors, the French and the Dutch, who had developed their own effective business tactics. Instead of paying for tea with silver, the Dutch often used tin and pepper, sourced from their network of contacts in Malaya. Striking deals with local sultans for the supply of both, they found a ready market in China, where the devout appeased the gods by burning paper coated with tinfoil, and this
meant that the Dutch could give the Hongs terms better than those the British could offer. Meanwhile, at home in Amsterdam, the largest banking houses dealt eagerly in tea, feeding it to smugglers at Dunkirk and Ostend for the short trip across the Channel to the English coast. Further south the French did much the same.

  Returning from China, their ships would dock at Lorient in Brittany, where the tea was sold at auction, but very little ever reached the streets of Paris. From Lorient the tea sailed to Guernsey in the British Channel Islands, a perennial hive of corruption where the local magistrates doubled as smugglers themselves. From there the tea traveled to Devon and Cornwall along with brandy and tobacco, coming ashore in coves and creeks for sale all over the west of England.12

  And so for all its size and energy, the British East India Company saw its share of the tea trade ebb away as its European rivals fed the booming black market at home and in America. Of course the company begged the government to help by cutting the taxes that gave the smugglers their competitive advantage. For five years, starting in 1767, the British Treasury suspended the largest excise duty, slashing the retail price of tea by a shilling a pound. For a while the smugglers lost ground and the law-abiding traders regained the upper hand. But this concession was due to end in 1772, and so the company hit upon another tactic for protecting its status at Canton. To prevent the foreigners from becoming too powerful, the viceroy had banned them from lending money to the Hongs, except by way of the cash advances paid when deals for tea were struck. Quietly, the British disobeyed. As a way to give themselves first choice of all the tea that China grew, they offered the Hongs generous overdrafts until their debts were vast, with Puankhequa alone owing the company the enormous sum of £60,000.13

  By now the system had become highly unstable; and by flooding the Hongs with credit, the British tipped it entirely out of equilibrium. If the export business lost momentum, the Hongs would be unable to repay what they had borrowed, and so again the supercargoes had to order tea in still larger amounts each season, regardless of the state of the market at home. If, for whatever reason, demand in England began to falter, the result would be a crash. Twice a year the East India Company held auctions in London, where it sold the leaf wholesale to a few dozen expert dealers. Highly experienced, with their own shares of the company’s stock, they knew the score: huge cargoes coming home, the tax break due to finish, and the smugglers poised to make another killing. All the dealers had to do was wait, and the price of tea would plummet.

  Until the March sale in 1771 the auctions went well, with the company disposing of all the tea it had. But then, between May and August, thirteen ships reached the Thames, carrying nine million pounds of the stuff, three million more than the amount the British market usually took each year. At the auction in September the dealers slashed their orders, leaving two-thirds of the tea without a buyer. For a while the price held firm, but with so much tea in the warehouse, and Thomson and his friends about to leave Canton with even more, at the sales due in 1772 the market was sure to collapse.14

  Even now the East India Company might have avoided a crisis on the scale that was about to occur. It would have taken foresight and humility, and some discreet negotiations with the Bank of England, but the company’s directors might have found a way to solve a problem that had not yet crystallized. Sadly, they had every reason to conceal the truth about their situation. A clique of talented but headstrong financiers had recently come to dominate the board, and prudence was the last thing on their minds.

  COMPANY MEN

  Time and again in the course of the company’s long history, ambitious men had quarreled for control of its affairs. Given the size of the business, the contracts it awarded, and the jobs it had to offer, a seat on the board was always worth a fight. But during and after the Seven Years’ War, the East India Company underwent a transformation that made its leadership an even richer prize.

  When it started life in 1600, with the granting of its royal charter, the company acted solely as a trading venture importing oriental luxuries. So it remained until the middle of the eighteenth century. As well as the factory at Canton, the company occupied bases in India, at Calcutta, Madras, and Bombay. Apart from that, it did not look for land or prestige. Content to rent space, do business, and no more, it stuck almost entirely to its old vocation, enjoying its monopoly on sales in England of silk and tea and spices. In the 1750s all of this began to change. During the war between Britain and France, the company became a territorial power in its own right. To cut another long story short, the East India Company saw an opportunity to acquire its own dominions in the richest part of India. With the blessing of the government in London, keen to forestall the French, the directors built their own empire in the valley of the Ganges.

  Step by step, by way of force, bribery, and maneuver, the British crept up the river from Calcutta to devour the rest of the province of Bengal. In doing so, the company also found a new source of profit, far larger, or so it thought, than any it had seen before. Spanning a fertile crescent, eight hundred miles across, from the edge of Burma to the Hindu holy city of Benares, the province seemed to be immensely valuable, richly endowed with weavers of silk and farmers of rice and grain. Best of all from a conqueror’s point of view, Bengal paid an annual land tax to its rulers. Each village had a council and a headman—in Hindi, a patel—whose duty it was to collect the revenue. The proceeds were potentially enormous from a territory bigger than the whole of France.

  In theory, the land tax belonged to the Mughal emperor in Delhi, but he was a long way off, and he mattered less and less. As each decade went by, his authority faded a little more as he fell victim to invasions by the tribes from Afghanistan. From about 1740 control of the land revenue had passed entirely to the viceroy of Bengal, known as the nawab; and by 1756 the nawab in question was Siraj-ud-Daula, a young man keen to free himself from outside influence. Angry with the British, whom he accused of fraud, he decided to evict them from his territory.

  The nawab took Calcutta with its British residents; many of them died in the Black Hole, a complicated incident whose true story may never be entirely known, and for a while it seemed that the British had lost Bengal. To recapture the town and rescue the survivors, the company sent a force of soldiers up the coast from Madras, under the command of Robert Clive. Betrayed by his own allies, the nawab lost a battle by a mango grove, close to the Tropic of Cancer at a little town called Palashi, and then he died of poison. With Siraj-ud-Daula out of the way, Clive replaced him with a puppet. After that the company began its creeping annexation of the province, taking possession of the land tax as it went. It started just around Calcutta, in a region prowled by tigers and known as the 24 Parganas. As time went by, the British expanded to the north until their empire stretched as far as the Himalayan foothills.

  The bulk of Bengal’s land revenue arose from two locations: the region known as Bihar, centered on the city of Patna; and the district, filled with paddy fields and silkworms, around the still larger city of Murshidabad, next to the modern border with Bangladesh. It took eight years and another military campaign before the British could legally acquire these territories, but at last the deed was done in 1765. Defeated in battle, the emperor signed the Treaty of Allahabad, giving the East India Company the diwan, meaning the right to collect all the taxes Bengal produced.15

  At that moment the British became the greatest power in India, with the prospect of still greater gains in the future as the Mughal Empire died away. Up to a point, the treaty can be compared to its counterpart in the West, the Paris treaty that gave Great Britain the wilderness beyond the Appalachians, but the Ganges far surpassed the Mississippi as a prize. While the American wilderness did nothing for Great Britain, other than drain its resources of soldiers and money, the diwan was an asset of the most tangible kind. Just like the Chinese at Canton, the nawabs insisted on taking their revenue in silver, and the British did the same. Before the treaty the company’s share of the land ta
x had amounted to only £600,000, far too small a sum to cover the cost of the army it needed to defend itself. After the diwan, its income from Bengal increased to more than £2.5 million. A quarter of that could be taken as a profit in hard cash, while the rest went to pay for salaries and soldiers.

  And so when word of the treaty reached London, the reaction was euphoric. When Clive’s dispatch arrived in the spring of 1766, the price of the company’s stock began to soar in the hope of ample dividends to come. The stock leaped up by more than 50 percent, and since the China trade was booming too, the price went on climbing the following year as well. By the spring of 1768, the company’s stock was trading at nearly £280, the highest price that it would ever attain.

  Everyone could see that the East India Company had done an excellent deal, but the burden of expectations became ever more demanding. Speculators bought the story, in the fond belief that the company’s earnings would grow in perpetuity. If anything happened to disappoint them, the fall would be all the more steep, because the rise had been so sharp. And if things began to go wrong, the directors might be inclined to hide the truth or try to rig the market to keep the stock price from collapsing: which is exactly what they did. In the late 1760s, the company’s board fell under the control of three especially aggressive traders, John Purling, Laurence Sulivan, and Sir George Colebrooke, each one taking his turn as chairman or deputy chair. Far from being members of a privileged, hereditary elite, they owed their success to intelligence and hard work, but each one also possessed an appetite for risk exceptional even by the standards of the age. Between them they led the company to the brink of failure.