In the mid-18th century, China was by no means a backward country.
Commerce was active, the monetary economy was developed, and the level of education was high.
China's bureaucracy was well-educated and professional, and after 1680 it managed to avoid the Malthusian trap and achieve significant population growth.
Given that good institutions lead to Smithian economic growth, the case of China, where excellent institutions coexisted with a stagnant economy, is certainly puzzling.
The Chinese system was certainly different from the European system, but by no means inferior.
China's central government was run by officials selected through a merit-based civil service examination, and it strictly enforced land property rights and systematically maintained law and order.
But some European thinkers, who had little contact with China beyond the writings of travelers and missionaries, began to sense that there were differences until the Industrial Revolution.
For example, David Hume, in his The Rise of Arts and Sciences, contrasted Europe's diversity and pluralism with China's homogeneity and unity, noting the differences between the two regions.
According to him, political divisions were the main reason why useful knowledge could spread in Europe.
Of course, he acknowledged China's science, technology, and sophisticated culture, which had achieved outstanding results in the past.
However, he pointed out that China's scientific development has slowed down significantly compared to Europe.
The reason was obvious.
In China, the authority of the great teacher spread easily throughout the empire, and “no one dared to resist the prevailing trend, nor were later generations brave enough to refute what their ancestors had universally handed down” [Hume, (1742) 1985, p.
122〕Because.
This idea has found sympathy among many scholars.
Wen-yuan Qian, 1985, pp.
25, 114] regarded a unified China as politically and intellectually “parochial,” while European pluralism ultimately laid the foundations for a political structure and ideology more favorable to the “emergence of modern science.”
Political divisions gave rise to “mutually restraining” political groups in Europe, giving considerable freedom to thinkers who did not conform to conventional wisdom.
The difference David Hume identified was crucial.
In short, intellectual activity in China was more centrally controlled and diffused by the government than in Europe, and consequently the market for ideas in China operated differently than in Europe.
Just how far behind was China? A groundbreaking study by Carol Shiue and Wolfgang Keller (2007) found that in terms of allocative efficiency, China was not far behind Europe even as late as 1750.
They argued that although they lagged behind the UK in terms of market integration (as measured by price co-ordination), they were on par with other European countries, thus questioning the claim that simply improving allocative efficiency (Smithian growth) would accelerate technological progress.
Instead, their research suggests that industrialization (including improvements in transportation networks) and institutional changes (including the elimination or relaxation of internal trade barriers or moves toward freer international trade) led to a higher level of integration of European markets in the first half of the nineteenth century.
In other words, many sources suggest that trade did not spur technological progress, but that technological progress and institutional change led to more efficient markets.
Moreover, in the Qing Dynasty, the 'buds of capitalism' sprouted, especially in the mining industry, which introduced advanced financing and management techniques.
In 18th-century China, large textile workshops and paper mills employing wage workers began to threaten cottage industries, a phenomenon similar to that occurring in Europe (Rowe, 2009, pp.
125-126).
Many scholars have shown that although China had different institutions for contract enforcement and dispute resolution than Europe, it was still sufficient to create a well-functioning market economy.
Moreover, the Chinese government has played a greater role in enforcing property rights than has been previously acknowledged.
Local Chinese officials resolved property disputes, such as land ownership and contracts, even in the absence of formal civil codes (Rowe, 2009, p.
58).
Although craftsmen's guilds existed in Song Dynasty China, there is no evidence that existing merchants formed cartels to seek rents by excluding others who were not members of the association, as guilds did in Europe until the 19th century (Pomeranz, 2013, pp.
106-108).
When we take the traditional meaning of 'good' institutions as the foundation for well-functioning markets and supporting their smooth operation, there is not much difference between the institutions of China and the most developed European countries.
Perhaps the most striking difference was that China had no intellectual property rights of any kind, including copyright (Alford, 1995).
But the absence of intellectual property rights is a consequence and symptom of deeper cultural differences, and is itself a secondary factor in explaining the growing gap in the development of useful knowledge between Europe and China. --- p.398-401

It has also been argued that China during the Qing Dynasty overproduced human capital.
Traditionally, Chinese education was designed to prepare students for public service, but by 1800, the pool of talented individuals was so narrow that only 1.4 million educated people were competing for 20,000 public positions.
Even the best scholars belonging to the Hanrimwon (Hanrimwon) were sometimes unable to avoid unemployment.
William Rowe argued that the Chinese imperial court's decline in demand for officials and the corrupt way in which they were distributed were mistakes (Rowe, 2009, p.
152), the more fundamental problem was that education was designed solely for the purpose of producing public officials.
Unlike Europe, China had no educational institutions to impart useful knowledge and prepare young people for commerce or industry.
Although slow, education in 18th-century Europe was moving in this direction.
On the other hand, other cultural spheres, including China, lagged far behind.
What cultural differences explain why Europe experienced such a successful Enlightenment and achieved economic modernization around the Industrial Revolution, which widened the gap with Asia by approximately two centuries? Greif and Tabellini (2014) argue that while the most basic social unit organizing cooperation among Chinese people was the extended family or clan, Europe had voluntary groups called "corporations" rather than blood-related ties.
The authors also associated these groups with a general morality that imposed greater binding power and a conventional 'parochial morality' that was mostly valid only among smaller kin.
As argued in Chapter 2, general morality is more conducive to individual and distributed efforts to generate intellectual innovation.
Indeed, the concept of general morality can be used to understand how the European republics of letters operated.
Members of the Republic of Letters had to work within a loosely connected network of strangers.
However, it can be observed that the general rules of ethics were applied, such as not manipulating the results, clearly stating the sources, and responding to various letters.
However, the differences between China and the West should not be exaggerated.
In China, too, there existed a marketplace of ideas where strangers exchanged letters and ideas and information.
Historical evidence shows that most of the useful knowledge in China during the Tang and Song dynasties was disseminated by public officials (Mokyr, 1990, pp.
209-238).
This is not to say that useful knowledge created by public officials is by no means worthless, but the useful knowledge created and disseminated in this way has difficulty in continuing to develop due to political ups and downs.
Indeed, the rise of a conservative government in China suggests that scientific and technological progress has slowed dramatically compared to a society led by the private sector.
The Greif-Tabellini theory argues that the divergence between Europe and China stemmed from deep cultural and institutional differences, not from metaphysical differences between Confucianism or Judaism-Christianity, but from fundamental social structures.
According to their theory, “endogenous social institutions and cultural characteristics were mutually reinforcing” (Greif and Tabellini, 2014, p.
21).
It is noteworthy that the momentum of technological progress began to slow after the clans' important role as the organization responsible for the Chinese economy reached its peak during the Song Dynasty.
More importantly, it was a cultural evolution driven by the choices of an intellectual elite.
This cultural evolution by choice is shaped by institutional structures, and thus contributes to the creation of these institutions.
The question we should be addressing here is not “Why did China fail?” (China did not fail) or “Why didn’t China make more technological progress?” (China did make a lot of technological progress).
Rather, the question we should be asking is why, during the period known as the early modern period (1500–1700), Europe and China were so different that they developed such a large technological and economic gap that has persisted to the present day.
Again, it is not so much that China did something wrong, but rather that a peculiar series of intellectual shifts that led to the Enlightenment occurred only in Europe.
And the unique power of the European Enlightenment influenced not only Europe but every corner of the globe.
Despite the strong arguments of revisionist scholars such as James Blaut (1993) and Jack Goody (2010), emphasizing this gap between Europe and China cannot be dismissed as mere Eurocentrism.
There are two extreme positions regarding this historical fact.
One is the deep-rooted European exceptionalism and superiority that has existed since ancient times, viewing non-European societies as 'primitive' and 'backward'.
Historians of the revisionist California School have criticized this interpretation and have presented radically opposing views.
According to them, there is no real difference between East and West, and the Great Divide is merely a counterweight (of intersecting histories) that temporarily gives one side an upper hand over the other.
Between these two extremes there is room for a third interpretation.
A third interpretation holds that at some point in early modern Europe, the cultural landscape began to shift dramatically, with various cultural entrepreneurs and their followers influencing the mindsets and beliefs of elite groups, creating an environment in which institutions could adequately accommodate these changes.
These changes were particularly favorable to innovation and technological advancement, laying the foundation for a fateful shift in the way useful knowledge is utilized in society.
As a result, these changes broke down the barriers that had prevented living standards in Europe from rising before 1800.
And this led to two centuries of European global dominance.
As non-European societies began to be exposed to Western culture, they had to undergo tectonic shifts that were previously unimaginable.
Of course, Western influence was resisted and changed, modified and mixed to suit local characteristics.
This produced different results depending on the region.
Exchange between the West and the East flowed in both directions.
The West has long adopted many Eastern technologies and inventions, from gunpowder and porcelain to umbrellas and smallpox inoculation.
Even in modern times, the West still feels no distance from Eastern culture and techniques such as acupuncture and cooking.
But the West has generally been uninterested in China's useful intellectual foundations of philosophy and institutions.
The Western brand of active Baconian philosophy, which explores and studies nature to discover usable natural laws and transform the physical world to improve material wealth, still holds the upper hand.

--- p.406~409