Between 1860 to 1900, the Second Industrial Revolution took place. China, which had its first Industrial Revolution sometime in the Song Dynasty, was well placed to throw itself headlong into the second. Luckily, at the helm was Yixin, First Emperor Gong, one of the most dynamic, forceful men of his age.
The modernization of China was a hectic, chaotic time that required not only the modernization of the Chinese manufacturing base, but also a modernization in the outlook of its people. Hidebound demands to Confucian principles were outdated in both scope and potential, and would be little use to the Chinese people, who needed not only moral backing, but enough scientific and mathematical backing to be useful. Of course, getting the Chinese to drop Confucianism was like trying to get Indians to drop Hinduism or the Ottomans to drop Islam, an exercise in futility. The best Emperor Gong could do was to reform the civil service examinations which required knowledge of Confucian and other classical rhetoric. The Emperor included an additional requirement of math and science topics in addition to the philosophic topics. In order to facilitate the spread of mathematical and scientific knowledge, the government funded the building of schools and universities. Beijing Tongwen Guan became Beijing University, and other major institutes of higher learning were founded in Tianjin, Shanghai, Guangzhou, Xi'an, Fuzhou and Chengdu as well. Initially, the universities were staffed by foreign professors, but were increasingly replaced by Chinese ones as time went on.
The same happened with industries in China. Initially, the factories were built with foreign expertise, especially British and German foreign expertise, but with Chinese characteristics (1). Therefore, China felt it important to maintain good relations with Great Britain, the Afghan War not withstanding. Thus, when Britain annexed Burma in 1886, the Chinese did not object, also, the Chinese expanded the area of Hong Kong, as well as the British concessions in Guangdong and Shanghai, in order to continue to attract British investment. The Germans were given a concession in the port of Qingdao(2). German contributions also greatly assisted in China's arms manufacturing industry, setting the bar for Chinese weapons manufacturers, and its steel, chemical and machine tool industries, which benefited greatly from German expertise. The British contributed improved light manufacturing techniques, such as textile and crafts manufacturing, as well as ship building techniques. In the early days of the Gong Restoration, British banks also dominated the Chinese landscape.
At the same time, young Chinese intellectuals began to study abroad. Unlike many of the refugees and rural poor that fled to the Americas, the intellectuals usually returned to China after their courses of study. They brought back a wealth of information about the outside world, as well as academic contacts and links. Some of these would soon transform into business contacts, especially with the rapidly rising United States, which began competing actively with the British and Germans on the international stage. China and the United States also maintained strong diplomatic and financial ties with one another. During the late 1880s, China began to build its own small colonial empire, only a few islands in the Pacific that used to belong to the French, but it did allow for the young Imperial Navy to stretch its legs. The Chinese fleet grew. By 1890, it had 12 tiesan (3) battleships, as well as dozens of cruisers, torpedo boats and other smaller craft. The Chinese fleet proved to be highly effective at stopping piracy in the South China Sea, more so than the British, who had trouble getting along with the locals.
The last step had to be undertaken by the Chinese themselves. The Imperial Treasury began to issue new types of banknotes backed not by gold or silver, but simply by government fiat (4). Initially, the Imperial Treasury floated the value of the new yuan against the several currencies, including the British pound, Deutsch Mark and United States dollar. Because the Chinese economy was expanding rapidly, inflation began to go up as well. In order to reduce inflation, the government carefully kept its spending in check, so it wouldn't have to print extra money to pay for its costs, while keeping interest rates high to curb the supply of currency. The Bank of China, founded in 1877, rapidly spread out across China, absorbing many small qianzhuang (5) along the way. It began to compete with the Orient Bank based in Bombay and the Hong Kong and Shanghai Bank based in Hong Kong. However, the BoC primarily made loans to farmers and small businesses, while HSBC underwrote securities for larger corporations. In fact, to avoid panicking the UK, the Bank of China was prohibited by Imperial order from growing too rapidly. Still, the groundwork for a stable financial system had been laid.
To the east, Japan was also growing, but somewhat more slowly. Shut out of Chinese markets, only a second rate power like France invested fully in Japan. But they did so vigorously, and Japan prospered. The Japanese quickly realized that they couldn't outdo the Chinese in volume or in price, so they had to outdo them in quality. Initially, the Japanese made luxury craft goods for the French market, but with improved machining technology, they began to make precision goods, such as lenses, pure chemicals and precision cut parts for steam engines. Japan's lack of energy resources and raw materials meant that their operations had to be efficient too. They weren't exactly as efficient as their counterparts in Europe at the time, but they would learn. In the meantime, since Japan managed to set itself up as a tax shelter, the wealthy from Great Britain, France and Germany poured their money into its highly efficient banking system. While the Bank of China was focusing on bringing liquidity to the Chinese people, the Japan focused strongly on corporate loans. The Japanese Zaibatsu actually managed to grow more quickly than their Chinese counterparts, thanks to greater efficiency in capital distribution. The Chinese had many collections of small businesses, and some large state owned enterprises, such as China Steel, China Shiyou (6) and the various arsenals and shipyards. The small businesses were seen as inefficient in an era of trusts, cartels, and Zaibatsu.
There was a similar problem in Great Britain. There were many competing small businesses, mostly family owned, that could not allocate capital as efficiently as larger businesses, such as trusts in the United States. However, the British were clever enough to find a way around this. The first capitalization cooperative was formed in the 1870s between a group of steel makers in the York region of England. The Yorkshire Steel Cooperative was a collection of 6 family owned steel factories who agreed to use common standards and practices, as well as to pool and equitably distribute capital to greatest efficiency. Yarrick Merchant Marine Collective was founded in 1879 and quickly made itself into the Carnegie Corporation's biggest rival. The practice of making capitalization cooperatives move to China. Hezuoshe (7) like Chang'an Heavy Industries, Wuhuan Precision Industries, Taiye Shipping, Kunming Engineering, and the Northern Industrial Collective were founded in the 1880s in order to achieve greater efficiency in capital distribution. Also, during this time, the China Industrial and Securities Bank was founded in order to underwrite startup Hezuoshe. Diplomatically, this was made possible due to Britain negotiating a treaty of non-intervention with China in regards to Burma. China's non-intervention in Burma helped it to revoke some of the commercial concessions of the earlier unequal treaties.
In other news on the British front, the Irish Home Rule bill of 1886 passed. It only passed by a single vote in both the House of Commons and House of Lords, but it ended up passing. In order to appease the Imperialist factions of Parliament, the Lord Lieutenant was given essentially autocratic power over Ireland, resulting in only nominal rule for the colony. The first Lord Secretary of Ireland was Irish born Garnet Wolsey, a Marshal of the British Empire. Of course, reaction to the Home Rule bill was mixed, mostly on the negative side, since it didn't really give the Irish any ability to govern themselves. Meanwhile, in South Africa, Stonewall Jackson, the liaison between the locals and the British, pushed strongly for anti-racist measures, stating that, "Keeping an entire race down in the ditch implies that you have to stay there with them", and that the economic conditions in Africa were tantamount to slavery. The last comment really, really made the British angry, with some members of Parliament suggesting that Jackson should be arrested for making seditious statements. Sensibly, the British authorities declined to do so, stating that doing so would incite a revolt.
Anyway, enough of economics and politics. Let's talk about something fun, the American Buzkashi League.
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(1): Sound familiar to something Mr. Deng said?
(2): Being Germans, the first thing they did was build a brewery. Qingdao Brewery still makes really good beer.
(3): Turreted battleship, with a single type of large gun caliber, a single type of medium gun and a single type of light gun. This setup was invented to reduce strain on rangefinding equipment vs. the multi-caliber European setups.
(4): Not wholly implausible. The Chinese *did* invent paper money. For the most paranoid investors, the Chinese will exchange gold or silver for the banknotes. Most never bother.
(5): Literally, a place that hold money.
(6): Petroleum.
(7): Cooperative.
