The world had entered an age of prosperity. Wondrous discoveries were being made in America every year. Europe was flush with easy money. China, the factory of the world, had been doubling its exports every other decade.
New trade routes – the fabled Silk Road and Silver Belt – were binding the world economy ever closer. One Asian city served as the linchpin of this emerging global network. A colony found by Europeans and run by an Asian elite, it was where East met West. Everyday in its port, caravels carrying exotic goods from the New World jostled with junks filled with prized products from China for a mooring spot. More money changed hands at its clearing house than anywhere else. Before Singapore, before Hong Kong, Manila was the undisputed centre of commerce in Asia Pacific.
Founded by Spanish conquistadors in 1571, the outpost quickly became a major metropolis that linked Asia with America. Manila hit the jackpot of history, so to speak, as the world was just about to witness the first wave of global trade.
Just two decades earlier, the Spanish colonisers in Peru had stumbled upon Cerro Rico – literally the “rich mountain” – that holds the world’s largest silver depots. Over the next century, Cerro Rico produced 60 per cent of all the silver mined in the world. Europe became flush with Peruvian fortune and the value of silver went over the cliff.
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Across the Pacific, Ming China was growing again after decades of internal strife. Ironically, the world’s largest economy was struggling with a “money shortage” problem. For millennia, China had been using silver as the medium of exchange but its exhausted silver mines could no longer keep up with its economic expansion. In modern language, China was experiencing a credit crunch.
This was a marriage made in heaven. Before long, silver began to move across the Pacific without passing through Europe first. China started to sell large quantities of goods – from silk to ceramics and porcelain – to the European markets. Manila was the centre of this trade. It was the world’s largest emporium where potatoes and chillies from America, spices from Java, pepper from India, African ivory, Japanese lacquer and all sorts of Chinese products were bought and sold. The huge price differences of silver in Asia and Europe made the business incredibly lucrative.
In the year 1600 in China, silver to gold hovered at about six to one – almost double the exchange rate in the west.
This encouraged European merchants to take their American silver to China where they could exchange it for high-quality silk or porcelain. These products were then sold back at home for a great profit. Silver inflows into China multiplied four times between 1600 and 1645. Taiwan historian Li Longsheng estimated that China had a net inflow of 11,250 tons of silver between 1550 and 1645. Most of these came from Peru and Mexico via Manila.
The great bull run lasted several decades. Then everything suddenly went south. China’s insatiable appetite for silver created a huge trade imbalance. Yet Beijing did not see it as an issue. The constant inflow of silver provided easy credit for the government, so it kept deliberate programmes to encourage exports. Inevitably, the price of silver in China started to fall until it reached parity with its value in Europe. This squeezed the European merchants’ profit margin while creating high inflation in the Chinese economy. The flow of silver started to taper off. To compensate for the loss in revenue, Beijing raised taxes. This only created a further downturn and political turmoil. In a matter of decades, the Ming dynasty collapsed amid civil wars and the Manchurian invasion.
At the same time, the lucrative trade encouraged rampant piracy. Portuguese and Spanish merchant fleets became increasingly vulnerable to attacks by Dutch, Chinese and Japanese pirates. Spain, already distracted by its war with England, had no interest or resources to protect the sea routes in Asia. The dissolution of an alliance with Portugal in 1640 severed the trade route between Manila and Macau – the most important artery of commerce in Asia Pacific at the time.
Just as rapid as its meteoric rise, Manila faded into history and never regained its former status. Its story is not unique. Ironically, the emergence of Manila a century earlier had led to the decline of Istanbul. Known as Constantinople before the Islamic conquest, Istanbul itself was one of the most important trade hubs in history, thanks to a geographic location that made it the bridge between the East and the West. The new Mexico-Manila-Macau route cut Istanbul out from the new commerce network. The Ottoman Empire economy contracted soon afterwards.
Throughout history, similar stories have repeated themselves over and over. Just think Venice and Aleppo. Today, as Hong Kong goes through a painful phase of soul-searching, many in the city cannot help but ponder on its future. Many argue Hong Kong will remain Asia’s top financial and trade centre for at least a few more decades because of its social values and uniqueness.
That may be the case. But looking back in history, people in Manila or Venice at the time were equally convinced of their manifest destiny and “uniqueness”. Yet changes in the global economy and politics, often on a scale incomprehensible to the people living through them, can make or break a city’s fortune as history flips its butterfly wings. ■
Chow Chung-yan is executive editor of the South China Morning Post, overseeing daily print and digital operations