The prosperity of the small states of South China was largely due to the growth of trade, especially the tea trade. The habit of drinking tea seems to have been an ancient Tibetan custom, which spread to south-eastern China in the third century A.D. Since then there had been two main centres of production, Szechwan and south-eastern China. Until the eleventh century Szechwan had remained the leading producer, and tea had been drunk in the Tibetan fashion, mixed with flour, salt, and ginger. It then began to be drunk without admixture. In the T'ang epoch tea drinking spread all over China, and there sprang up a class of wholesalers who bought the tea from the peasants, accumulated stocks, and distributed them. From 783 date the first attempts of the state to monopolize the tea trade and to make it a source of revenue; but it failed in an attempt to make the cultivation a state monopoly. A tea commissariat was accordingly set up to buy the tea from the producers and supply it to traders in possession of a state licence. There naturally developed then a pernicious collaboration between state officials and the wholesalers. The latter soon eliminated the small traders, so that they themselves secured all the profit; official support was secured by bribery. The state and the wholesalers alike were keenly interested in the prevention of tea smuggling, which was strictly prohibited.

The position was much the same with regard to salt. We have here for the first time the association of officials with wholesalers or even with a monopoly trade. This was of the utmost importance in all later times. Monopoly progressed most rapidly in Szechwan, where there had always been a numerous commercial community. In the period of political fragmentation Szechwan, as the principal tea-producing region and at the same time an important producer of salt, was much better off than any other part of China. Salt in Szechwan was largely produced by, technically, very interesting salt wells which existed there since _c._ the first century B.C. The importance of salt will be understood if we remember that a grown-up person in China uses an average of twelve pounds of salt per year. The salt tax was the top budget item around A.D. 900.

South-eastern China was also the chief centre of porcelain production, although china clay is found also in North China. The use of porcelain spread more and more widely. The first translucent porcelain made its appearance, and porcelain became an important article of commerce both within the country and for export. Already the Muslim rulers of Baghdad around 800 used imported Chinese porcelain, and by the end of the fourteenth century porcelain was known in Eastern Africa. Exports to South-East Asia and Indonesia, and also to Japan gained more and more importance in later centuries. Manufacture of high quality porcelain calls for considerable amounts of capital investment and working capital; small manufacturers produce too many second-rate pieces; thus we have here the first beginnings of an industry that developed industrial towns such as Ching-te, in which the majority of the population were workers and merchants, with some 10,000 families alone producing porcelain. Yet, for many centuries to come, the state controlled the production and even the design of porcelain and appropriated most of the production for use at court or as gifts.

The third important new development to be mentioned was that of printing, which since _c_. 770 was known in the form of wood-block printing. The first reference to a printed book dated from 835, and the most important event in this field was the first printing of the Classics by the orders of Feng Tao (882-954) around 940. The first attempts to use movable type in China occurred around 1045, although this invention did not get general acceptance in China. It was more commonly used in Korea from the thirteenth century on and revolutionized Europe from 1538 on. It seems to me that from the middle of the twentieth century on, the West, too, shows a tendency to come back to the printing of whole pages, but replacing the wood blocks by photographic plates or other means. In the Far East, just as in Europe, the invention of printing had far-reaching consequences. Books, which until then had been very dear, because they had had to be produced by copyists, could now be produced cheaply and in quantity. It became possible for a scholar to accumulate a library of his own and to work in a wide field, where earlier he had been confined to a few books or even a single text. The results were the spread of education, beginning with reading and writing, among wider groups, and the broadening of education: a large number of texts were read and compared, and no longer only a few. Private libraries came into existence, so that the imperial libraries were no longer the only ones. Publishing soon grew in extent, and in private enterprise works were printed that were not so serious and politically important as the classic books of the past. Thus a new type of literature, the literature of entertainment, could come into existence. Not all these consequences showed themselves at once; some made their first appearance later, in the Sung period.

A fourth important innovation, this time in North China, was the introduction of prototypes of paper money. The Chinese copper "cash" was difficult or expensive to transport, simply because of its weight. It thus presented great obstacles to trade. Occasionally a region with an adverse balance of trade would lose all its copper money, with the result of a local deflation. From time to time, iron money was introduced in such deficit areas; it had for the first time been used in Szechwan in the first century B.C., and was there extensively used in the tenth century when after the conquest of the local state all copper was taken to the east by the conquerors. So long as there was an orderly administration, the government could send it money, though at considerable cost; but if the administration was not functioning well, the deflation continued. For this reason some provinces prohibited the export of copper money from their territory at the end of the eighth century. As the provinces were in the hands of military governors, the central government could do next to nothing to prevent this. On the other hand, the prohibition automatically made an end of all external trade. The merchants accordingly began to prepare deposit certificates, and in this way to set up a sort of transfer system. Soon these deposit certificates entered into circulation as a sort of medium of payment at first again in Szechwan, and gradually this led to a banking system and the linking of wholesale trade with it. This made possible a much greater volume of trade. Towards the end of the T'ang period the government began to issue deposit certificates of its own: the merchant deposited his copper money with a government agency, receiving in exchange a certificate which he could put into circulation like money. Meanwhile the government could put out the deposited money at interest, or throw it into general circulation. The government's deposit certificates were now printed. They were the predecessors of the paper money used from the time of the Sung.