Second Phase (1872-1885)
In 1870 a number of foreigners were killed during riots in the city of Tianjin. This incident soured China's relatively stable relations with Western nations and marked the end of the first period of the Self-Strengthening Movement. By the second period, Li Hongzhang had emerged as the most important leader of the reform movement. He played a pivotal role in starting and supporting many of the initiatives during this period. Over 90 percent of the modernization projects were launched under his aegis.
During this phase, commerce, industry, and agriculture received increasing attention. Attention was also given to the creation of wealth in order to strengthen the country. This was a new idea for the Chinese, who had always been uncomfortable with activities which create wealth from anything other than land. The development of profit-oriented industries such as shipping, railways, mining, and telegraphy were therefore rather new ventures for the Chinese government.
The Chinese government sanctioned what was known as "government-supervised merchant undertakings". These were profit-oriented enterprises which were operated by merchants but which were controlled and directed by government officials. Capital for these enterprises came from private sources but the government managed them and also provided subsidies in some cases.
Examples of such government supervised merchant undertakings include the China Merchants' Steam Navigation Company, Kaiping Coal Mines, the Shanghai Cotton Mill, and the Imperial Telegraph Administration.
However, being government supervised, these enterprises could not escape from the ugly sides of government administration: they suffered from nepotism, corruption, and lack of initiative. Managers also found ways to siphon off profits in order to avoid the payment of official levies and exactions. They also monopolized business in their respective areas, and by thus discouraging private competition, they impeded economic development. Despite its economic inefficiencies, the merchant-bureaucrat combination remained the principal device for initiating industrial enterprises.
Read more about this topic: Self-Strengthening Movement
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