The method by which trade between China and foreigners was conducted through the port of Canton is known as the Canton method. Although foreign merchants had the opportunity to trade in the Chinese port of Canton, foreign merchants were not allowed to stay there all year round. In the summer, when their trade was closed, they took refuge in the port of Macau. Although Macau was considered a Portuguese colony, China was in fact the real owner of the port.
Foreign merchants were forced to leave their wives and children at the port of Macau when they went to trade in Canton. The Chinese government has adopted this policy so that foreigners do not become interested in living in Canton permanently. The terms of trade and commerce with foreigners were also set by the Chinese princes and arrangements were made to levy import-export duties as much as possible.
However, only a small portion of the collected duty was deposited in the treasury of Peking (Beijing). Most of the money collected was distributed from the local governor to the subordinates. So the Chinese government tries to run this business exclusively in order to make huge profits from foreign trade.
From 1702, foreigners were allowed to trade through agents known as merchants favored by the emperor. This method was prevalent for about fifty years. But the success of this method was unsatisfactory, and the Chinese foreign trade association, known as Co-hong, was entrusted with the responsibility of foreign trade.
The members of this trade association are known as Security Merchants. Although the system was abolished in 1781, the Co-hong system was reintroduced in 1782, and no significant changes were made until 1842. During the reintroduction of this system – the monopoly trade policy was not changed but the number of Chinese trading companies engaged in foreign trade was increased and in the end thirteen companies were given the responsibility of this trade.
It is customary to appoint one foreign merchant as a member of the Chinese Chamber of Commerce as Security Merchants. According to this method, every foreign merchant could buy and sell goods through his Security Merchants. As a result, members of the Chinese Chamber of Commerce have the opportunity to buy goods at lower prices and sell goods at higher prices.
As guarantors to foreign merchants, Chinese merchants arranged for the payment of import and export duties and other demands of royalty. However, the guarantors would arrange for the collection of everything by adding the money paid to the price of the goods.
Co-hong was the link between Chinese princes and foreign merchants, and through the thirteen members of Co-hong, he maintained contact between Chinese ambassadors, governors and magistrates in foreign trade factories. Even letters of complaint and other petitions from foreign merchants against members of Co-hong were sent to the government through them.