Crossposted at the Medium

Why did Japan successfully modernize in the 19th century while China failed to do so? Both China and Japan came under increasing threat from the Western powers after 1850. In response, Japan successfully undertook a program of state building and modernization; in China, however, attempts to modernize proved unsuccessful and the power of the central state was fatally weakened. The failure to build a modern state led to China’s so-called lost century while Japan’s success enabled it to become the first non-western country to industrialize. In a paper with Chiaki Moriguchi (Hitotsubashi University) and Tuan-Hwee Sng (NUS), we explore this question using a combination of historical evidence and formal modeling.

On the surface this East Asian “little divergence” is extremely puzzling. Qing China, as late as the end of the eighteenth century, was a powerful centralized empire. An impersonal bureaucracy selected by exams, and routinely rotated, governed the empire. In contrast, the institutions of Tokugawa Japan are usually described as feudal. The shogun directly ruled only 15% of the country. The remainder was divided into 260 domains ruled by lords known as daimyo who collected their own taxes, possessed their own armies, and issued their own currencies. To the outside observer China would have seemed much more likely to have been able to establish the institutions or a centralized state than Japan.

For much of the early modern period (1500–1700) China and Japan possessed military capabilities that made them more than a match for any western power. This changed dramatically after the Industrial Revolution and their vulnerability exposed by the Opium War (1839–1840) and the Black Ships Incident of 1853, respectively. During the First Opium a small number of British ships overpowered the entire Chinese navy, while Commodore Perry’s show of force in landing in Japan in 1853 convinced the Japanese of western naval superiority. Within a few years, political elites in both countries recognized the need to modernize if only to develop the military capacity required to fend off this new danger.

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In China, after the suppression of the Taiping Rebellion, there were attempts at modernizing — notably the Self-Strengthening movement associated with Li Hongzhang and others. Recent scholarship has reevaluated this movement positively. At the purely military-technological level it was in fact quite successful. The Jiangnan Arsenal and the Fuzhou Shipyard saw the successful importation of western military technology into China and the Chinese were soon producing modern ships and weaponry. However, these developments were associated with a process of political decentralization as local governors took on more and more autonomy. The importation of military technology was not associated with more far-reaching societal or political reforms. There was no serious attempt to modernize the Qing state.

In contrast, Japan, following the Meiji Restoration, embarked on whole scale-societal transformation. The daimyo lost all power. Feudalism was abolished. Compulsory education was introduced as was a nationwide railway system. A new fiscal system was imposed in the teeth of opposition from farmers. The samurai were disarmed and transformed from a military caste into bureaucrats and businessmen.

Qing China and the newly modernized Meiji Japan would collide in the first Sino-Japanese war (1894–1895). Before the war, western observers believed China would win in part because of their superior equipment. But the Chinese lacked a single national army. It was the Beiyang army and the Beiyang fleet that fought the entire Japanese military force. The fact that Japan had undergone a wholesale transformation of society enabled them to marshal the resources to win a rapid victory.

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Why did the Japanese succeed in modernizing while Qing China failed to do so? Historians have proposed numerous explanations. In our paper, however, rather than focusing on cultural differences between Japan and China, we focus on how different geopolitical incentives shaped their decisions to invest in state capacity and state centralization.

Before the mid-19th century China only faced a threat from inner Asia from where historically nomadic invasions had routinely invaded and threatened the sedentary population of the Chinese plain. Due to this threat, historically China tended to be a centralized empire with its capital and the bulk of its professional army stationed close to the northern frontier (see Ko, Koyama, and Sng (2018)). In contrast, Japan faced no major geopolitical threats prior to 1850. This meant that it could retain a loose and decentralized political system.

After 1850 both countries faced major threats from several directions. China was threatened on its landward borders by Russian expansionism and from the coast by Britain and France (and later Germany and the United States). Japan was threatened from all directions by western encroachment.

We build a simple model which allows for multidirectional geopolitical threats. We represent each state as a line of variable length. States have to invest in state capacity to defend against external geopolitical threats. Each state can use centralized fiscal institutions or decentralized fiscal institutions.

If there is strong threat from one direction, as China faced prior to 1850, the dominant strategy is political centralization. In the absence of major geopolitical threats decentralization may be preferable as was the case in Tokugawa Japan.

The emergence of a multidirectional threat, however, changes things. A large country facing a multidirectional threat may have to decentralize in order to meet the different challenges it now faces. This is what happened in China after 1850. In contrast, for a small state with limited resources, an increase in the threat level makes centralization and resource pooling more attractive. For a small territory like Japan, the emergence of non-trivial foreign threats renders political decentralization untenable.

We then consider the incentives to modernize. Modernization is costly. It entails social dislocation and creates losers as well as winners, the losers will attempt to block any changes that hurt their interests. We show that for geographically compact polities, it is always a dominant strategy to modernize in the face of a multidirectional threat as the state is able to manage local opposition to reform. This helps to explain why all members of the Japanese political elite came around to favoring rapid modernization by the late 1860s.

Consistent with our model, modernization was more difficult and controversial in China. The Qing government and particularly the Empress Dowager famously opposed the building of railroads. The most well-known example of this was the Wusong Road in Shanghai. Built using foreign investment it was dismantled in 1877 after locals complained about it. The Qing state remained reactive and prepared to kowtow to local powerholders and vested interests rather than confront them. Despite local initiatives, no effort was made at wholesale reforms until after China’s defeat at the hands of Japan in 1895.

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By 1895 it was too late, however. The attempts of the Qing state to reform and modernize led to its collapse. Needless to state, East Asian’s little divergence would have lasting consequences.

Japan’s modernization program astonished foreign observers. Victory over Russia in 1904 propelled Japan to Great Power status but also set Japan on the path to disaster in the World War Two. Nevertheless, the institutional legacy of Japan’s successful late 19th century modernization played a crucial role in Japan’s post-1945 economic miracle.

Following the collapse of the Qing dynasty China fragmented further entering the so-called warlord era (1916–1926). Though the Nationalist regime reunified the country and began a program of modernization, the Japanese invasion and the Second Sino-Japanese War (1937–1945) devastated the country. The end result was that China came to be reunified by the Communist party and to experience more conflict and trauma until it began to embrace market reforms after 1979.