For thousands of years, China had been a peasant society with commercial activities consciously suppressed, which shaped China’s business traditions. But it was not always the case. There was a time when China was a paradise for merchants, and the merchant paradise lasted for 600 years.

It was Shang, a dynasty established in 1700BC by Chinese merchants.

The Achievements of the Merchant Dynasty: An Era of Reform & Opening up

Shang was an open-minded and creative age.

During that time the advanced bronze technology was developed; a monetary system was established using shells, both collected from the seashore and made with animal bones or metals; large cities were built to facilitate trades, and a legal system governing the civil and business activities was set up.

And above all, the earliest form of Chinese script known as Jiaguwen was invented, from then on the events in Chinese history was faithfully and meticulously documented.

The Foundation of the Merchant Achievements: Hydraulic Projects and Advanced Agriculture

The ancestor of Shang’s ruling family was not a merchant but a government official who assisted Yu the Great, the founding father of the preceding Xia Dynasty (2000BC-1700BC), to build a massive flood control and irrigation system.

The innovative hydraulic infrastructure, along with the Lunar Calendar formulated also during the Xia for the purpose of helping guide the farming activities, played the critical roles in China’s speedy agricultural development.

As some populations had been freed from working in the land, they were able to conduct more profitable craft and commerce businesses, while the roads and waterways built to allow the hydraulic projects to proceed made the inter-regional trade possible.

All these paved the way for the rise of the merchant class in China. Over time these highly mobile group of people grew so powerful that they eventually overthrew the Xia and set up a kingdom ruled by the merchants.

The Failure of the Merchant Dynasty: Opening up to Everything that Generates Profit

As Shang people indulged in commercial activities and placed the pursuit of profit above anything else, their agriculture sector gradually weakened, so the kingdom kept waging wars against its neighbours in the east along China’s coastline where the lands were under better care and thus more fertile and agricultural products abundant. The wars helped expand Shang to include today’s Jiangsu, Zhejiang and Fujian provinces, but it also depleted the state financially.

As a merchant society, the people of Shang were basically governed by business contracts. Apart from that, they felt no obligation to help the community when needed or defend the territory when attacked. After all, they had little attachment to the land, either physically or emotionally.

Since the ethical foundation that bound individuals together into a society crumpled, the authority had to rely heavily on the laws to keep order, and the laws of Shang were numerous and the punishments were ruthless.

A morally corrupted litigation-riddled state that was based on a bubble economy and harsh punishment could gain no loyalty from its citizens; when a duke called for rebellion, the soldiers responded immediately, and the last merchant king burned himself in the palace.

A Response to the Merchant Dynasty: Refocus on Agriculture and Morality

When Zhou replaced Shang, the new government drew lessons from the merchant state. It laid down a policy to promote the real economy (agriculture) and positioned moral principles and community values above the laws and individual pursuit of profit.

Zhou era is a significant turning point in Chinese history. For over 2,000 years, it served as the archetype for later dynasties’ political, economic and cultural formation.

And among all Zhou fans in Chinese history, Confucius (551BC – 479BC) was the most vocal one.

Confucius: Moral Principles and Social Values First

Confucius praised Zhou for having correctly identified the most important task of the government: “The mission of the state is not about collecting abundant wealth, but to uphold morality and justice (国家不以聚集财富为利益, 而以实行道义为利益).”

How to uphold morality and justice?

He believed it cannot be achieved through intricate laws, endless litigations and harsh punishment, because “if the people be led by laws, they will only try to avoid the punishment with no sense of shame; but if the people be led by virtue, they will discern right from wrong (道之以死, 齐之以刑, 民免而无耻; 道之以德, 齐之以礼, 有耻且格).”

He hence regarded a society that is dominated by legal professionals and lawsuits as morally less advanced. “I do not inspire to be the best judge,” he once said, “but work on teaching people not to quarrel, fight and initiate litigations (听讼, 吾犹人也. 必也使无讼乎).”

He summarised two social values as the cornerstones of a civilised society: benevolence (仁) and rites (礼).

Benevolence is about compassion towards fellow human beings, which is the foundation and core of morality. Yet benevolence is an intangible attitude, therefore it needs tangible rites – the code of civil conduct – to ensure that moral principles are observed. As for law, it is just the bottom line of acceptable civil conduct.

In the ideal world of Confucius, individuals shall wish to be successful as well as like to help others to succeed (己欲达而达人), while the state governs for the interest of all people not just a small group of rich and powerful elites (天下为公).

His social aspiration clearly clashes head-on with the conventional merchant spirit which is all about competing against each other and hunting for profit.

A State Policy That Lasted for 2000 Years: Suppress Merchants

Another 300 years or so passed since Confucius advocated benevolence and rites, and the Han Dynasty, one of the four golden ages in the imperial Chinese era, came into being (another three are the Tang Dynasty, Song Dynasty and Ming Dynasty). But right from the beginning, it ran into a serious collision course with the merchants.

By then the country had just recovered from the decades of civil wars caused by peasant rebellions and urgently needed to get back to its feet economically, yet many merchants kept making speculative purchases and then held on the precious goods waiting for prices to soar.

The founding emperor of the Han Dynasty himself was originally a small merchant and knew well how an aggressive business culture could encourage even force people to adopt bad practices. His government thus introduced strict laws to regulate the market, including allowing the state monopoly on salt, iron and alcohol, exercising government control of transportation, logistics and price, and imposing heavy taxes upon merchant business.

In an effort to curb a profit-chasing-at-all-costs mentality, during the reign of his grandson Emperor Hanwu, the social status of the merchants was formally demoted, and eventually, the poor retail businessmen and bankers found themselves at the bottom of China’s four major social classes below that of scholars, peasants and tradesmen. They were prohibited from taking the state exam to become a government official, wearing clothes made of fine garments such as silk, building residences in a grand style, travelling in a luxurious carriage and purchasing farmland for commercial uses.

The Response from the Merchants: Becoming a Confucius Merchant

Ever since Confucius had been elevated to the state-sponsored ideology, also during the reign of the mighty Emperor Hanwu, the concept that every kid can be brought up as a noble adult through the right education gained popular recognition, and China transformed from a rigidly hierarchical social system into an open class structure, where every man had an opportunity to become a government official once passed the academic examinations regardless of which family he was born into. In fact, many prime ministers of the Song and Ming were from a very humble background.

However, there was an exception. For the merchants and their children, the door to improving social status through academic examinations was still shut, completely.

Does that mean the merchants and their descendants would be hopelessly condemned to the state of social outcasts forever?

Here came the Ming Dynasty (1368 – 1644), a turning point for Chinese merchants.

Wang Yangming (1472 – 1529), a high government official and one of the most respected Confucius scholars, famously said the following: “Four groups of people (scholars, peasants, tradesmen and merchants) have different occupations but the same consciousness (古者四民异业而同道，其尽心焉，一也).”

After a thousand years of struggle about their position in Confucius China, eventually, Chinese merchants found a way to join the mainstream culture: that is to resolve the conflict between Confucius teachings and merchant practices and to conduct business in an ethical manner with an aspiration to achieve the common good.

By so doing, many sellers and bankers had successfully reinvented themselves as Confucius Merchants.

After the collapse of the Ming, sizable scholars and former officials who refused to serve an alien regime of invaders decided to make a living by joining the merchant rank, which further boosted the number and uplifted the status of the Confucius merchants in Chinese society.

The Contributions of the Merchants

Despite an inherited commerce-suppress policy during China’s classic age, the contributions made by the merchants to the Chinese economy kept growing.

Song Dynasty (960-1279) was a highly progressive age in technology, which led to the rapid growth of manufacturing and craft industries and that in turn stimulated commerce activities. During that time, the trade and commercial tax paid to the state had exceeded the tax collected from agriculture — the same phenomenon did not occur anywhere in the world until centuries later.

After a brief setback, China rose again in the Ming time, and so was commerce. Ming Dynasty developed the most advanced commercial economy in Chinese history, with merchants travelling to China from the Middle East, Central Asia and South East Asia, and government-sponsored fleets cruising the world and conducting trade business along the way.